Question

The investment multiplier is given by the formula:

Options

• \[\frac{\Delta Y}{\Delta \bar{A}}=\frac{1}{1-c}=\frac{1}{s}\]

• \[\frac{\Delta Y}{\Delta \bar{A}}=\frac{1}{1+s}\]

• \[\frac{\Delta Y}{\Delta \bar{A}}=\frac{c}{1-c}\]

• \[\frac{\Delta Y}{\Delta \bar{A}}=\frac{s}{1-c}\]

Answer 1

The investment multiplier K equals the ratio of the total increment in equilibrium output/income (ΔY) to the initial increment in autonomous expenditure (ΔĀ). Since \[s = 1 - c\], it can be written equivalently as \[\frac{1}{1-c}\] or \[\frac{1}{s}\].