Which of the following statement is true?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → The value of the investment multiplier is always greater than 1.
The investment multiplier (K) is given by K=1/(1−MPC)= 1/MPS.
Since the marginal propensity to save (MPS) is always between 0 and 1, the denominator is less than 1, making K always greater than 1.