If Multiplier is 2.5, how much investment will be required to generate additional income of 1000 crores?

400 crores

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