The value of the investment multiplier does NOT depend on which of the following?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → APC
The multiplier is 1 / (1 − c) = 1 / s. It depends only on the MPC (c), which is also the slope of the consumption function, and on the MPS (s = 1 − c).
Option (1) APC — Does not affect it. The APC = C / Y is an average, and it does not enter the formula.
Option (2) MPC — Affects it. A larger c gives a larger multiplier.
Option (3) Slope of the consumption function — Affects it. The slope of the consumption function is the MPC itself.
Option (4) MPS — Affects it. The multiplier equals 1 / MPS.
NCERT (2026-27): “Consumption Function – Graphical Representation Using the same logic, the consumption function can be shown as follows: Consumption function, where, C̄ = intercept of the consumption function c = slope of consumption function = tan α …”
“where ΔY is the total increment in final goods output and c = mpc . Observe that the size of the multiplier depends on the value of c . As c becomes larger the multiplier increases.” |
