Practicing Success
If the marginal propensity to consume is 0.8. The value of the investment multiplier will be : |
1.2 5 0.9 0 |
5 |
The correct answer is option (2) : 5 The investment multiplier represents the overall increase in the national income resulting from an initial increase in investment. It is calculated using the formula : Multiplier $=\frac{1}{1-MPC}$ where MPC is the marginal propensity to consume. If the marginal propensity to consume (MPC) is 0.8, then the value of the investment multiplier is : Multiplier $=\frac{1}{1-0.8}=\frac{1}{0.2}= 5 $ Therefore, the value of the investment multiplier is 5 corresponding to option (2) . |