Which of the following is NOT an expression for the investment multiplier?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 1/c
The investment multiplier is the rise in output divided by the rise in autonomous spending. It equals 1 / (1 − c), and since 1 − c = s, also 1/s.
Option (1) ΔY/ΔA — True. This is the definition: the rise in output per unit rise in autonomous spending.
Option (2) 1/(1 − c) — True. This is the formula, with c the mpc.
Option (3) 1/s — True. Since s = 1 − c, 1/s is the same as 1 / (1 − c).
Option (4) 1/c — False. The denominator must be 1 − c, not c. With c = 0.8, 1/c = 1.25, while the multiplier is 5.
NCERT (2026-27): “4.3.3 The Multiplier Mechanism … The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. 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. Recalling that 10 and 0.8 represent the values of ΔI = ΔA and mpc, respectively, the expression for the multiplier can be explained as”
“where ΔY is the total increment in final goods output and c = mpc . Observe that the size of the multiplier depends on the value of c . As c becomes larger the multiplier increases.” |
