Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

The function of the investment multiplier is?

Options:

$ΔY/Δ(Y-S)$

$ΔΙ/ ΔY$

$ΔY/ ΔΙ$

$ΔY/ Δ\bar Α$

Correct Answer:

$ΔY/ Δ\bar Α$

Explanation:

The correct answer is Option (4) → $ΔY/ Δ\bar Α$

The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy.

The investment multiplier = $ΔY/ Δ\bar Α$

                                       = 1 / (1- c) = 1 / S

where ΔY is the total increment in final goods output and c = mpc.  

The size of the multiplier depends on the value of c multiplier increases.