Question

Why does a one-time increase in investment fail to sustain the multiplier effect?

Options

• It leads to a permanent rise in saving

• MPC becomes zero after one round

• The income generated gradually fades back to the original level

• It causes deflation in the economy

Answer 1

The income generated gradually fades back to the original level

Explanation:

The multiplier needs continuous investment. A one-time injection raises income only temporarily.