If the entire additional income is saved in an economy, the value of investment multiplier will be
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 1
K=1/ (1−MPC)
If the entire additional income is saved, then MPC = 0 and MPS = 1.
Then K = 1 / (1 -0) = 1
That means any increase in investment will raise income by the same amount — there is no multiplied effect, because people are not spending their extra income.