Q. 28

What is the range

Answer :

An investment multiplier determines the financial impact of a public or private project on the economy.

Investment increases productive capacity that raises the level of output, employment and income. When investment increases by a certain amount, aggregate income increases by a multiple of that investment.This multiple is called investment multiplier.


MPC is the increase in the amount of consumption from the increase in the income of the person.


Multiplier=1/(1-MPC)


If MPC is high the value of multiplier will also be high.


Marginal propensity to save (MPS) refers to the proportion of any extra income that is saved by consumers.


MPS = 1-MPC


So if MPS increases then MPC decreases, and we know when MPC decreases then multiplier also decreases.


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