If there is an increase in investment by Rs. 100 in an economy, MPC = 0.9, choose the correct sequence with reference to the working of the investment multiplier.

(A) Producers increase their planned output further by $(0.9)10$, the income of the economy goes up by $(0.9)10$ and consumption demand increases further by $(0.9)^210$.
(B) This process goes on, round after round.
(C) Income increases by 100, Consumption expenditure increases by 90 and therefore, aggregate demand goes up by 90.
(D) The total increment in the income will be 1000.

Choose the correct answer from the options given below:

(C), (A), (B), (D)

The correct answer is Option (3) → (C), (A), (B), (D)

• (C) Initially, income increases by ₹100 due to investment, leading to a rise in consumption by ₹90 (since MPC = 0.9). Hence, aggregate demand increases by ₹90.

• (A) In the next round, producers respond to the higher demand by increasing output by ₹90. This increases income again by ₹90, causing consumption to rise further by (0.9)×90=81 and so on.

• (B) This process continues round after round, with each successive increase in income and consumption being smaller than the previous one.

• (D) Eventually, the total increase in income due to the multiplier effect will be ΔY= {1 /(1 - MPC)} * Δ I i.e 100/ 0.1 = 1,000