Which of the following is correct with respect Investment Multiplier ?

(A) $k=\frac{ΔY}{ΔI}$

(B) $k=\frac{ΔI}{ΔY}$

(C) $k=\frac{1}{MPC}$

(D) $k=\frac{1}{MPS}$

(E) 1 ≤ k ≤ ∝ ie,  minimum value of Investment multiplier is 1 and maximum not defined

Choose the correct answer from the options given below :

(A), (D), (E) Only

The correct answer is option (2) : (A), (D), (E) Only

The investment Multiplier, denoted by "k" represents the change in the overall level of economic output or income in response to a change in investment spending. It measures the impact of an initial change in investment on the total income or output in an economy.

A. The formula for the investment Multiplier is typically expressed as :

$k=\frac{ΔY}{ΔI}$

Where :

• "k" is the investment Multiplier.
• ΔY represents the change in the total income or output.
• Δl represents the change in investment spending.

B. Since , The Formula is $k=\frac{ΔY}{ΔI},$ using its inverse will give us the incorrect multiplier.

C. We know that $k=\frac{ΔY}{ΔI},$ We also know That $ΔY = Δ C + Δ l$ or $ΔY -Δ C$

Using These We cam Derive that,

Or, $k=\frac{1}{(1-MPC)}$

1 - MPC = MPS, It can also Be written As $k =\frac{1}{MPS}$

Thus, we can state that D is True where as C would be incorrect.

E. The statement "1 ≤ k ≤x" signifies that the investment multiplier always results in at least a one-to-one increase in income for a change in investment (minimum value of 1), while the maximum potential multiplier value, "x, " is not fixed and can vary depending on economic conditions. Correct.