If Multiplier is 2.5, how much investment will be required to generate additional income of 1000 crores?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 400 crores
The relationship between investment and the resulting change in income is described by the investment multiplier. The multiplier effect states that an initial change in investment leads to a proportionately larger change in national income.
Given: Multiplier = 2.5, Change in Income = 1000 crores
Investment Multiplier = Change in Income / Change in Investment
Change in Investment=Change in Income /Investment Multiplier
= 1000 / 2.5 = 400 crores
Therefore, an investment of ₹400 crores is needed to generate an additional income of ₹1000 crores when the multiplier is 2.5