Advertisements
Advertisements
Questions
How is the investment multiplier related to marginal propensity to consume?
How is the multiplier related to marginal propensity to consume?
Briefly explain how investment multiplier is related to Marginal Propensity to Consume (MPC).
Explain
Short Answer
Advertisements
Solution
The investment multiplier is given by the formula
K = `1/(1 - MPC)`
= `1/(1 - c)`
where C is the marginal propensity to consume (MPC).
This means the multiplier’s value depends directly on the MPC. The greater the MPC, the higher the multiplier, and the lower the MPC, the smaller the multiplier.
shaalaa.com
Is there an error in this question or solution?
Chapter 12: Theory of Income and Employment - TEST YOURSELF QUESTIONS [Page 231]
