What would be the value of investment multiplier if MPC = MPS ?
Answer & explanation
Correct answer: option 3
The correct answer is : 2 times.
Given MPS=MPC
We know that MPC + MPS =1
=> 2 MPS= 1
=> MPS= 1/2
=> MPS= 0.5
The investment multiplier formula is:
Multiplier = 1 / 1- MPC
= 1 / MPS
=1/0.5
= 2 Times