If MPC = 0.75, how much …
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Gaurav Seth 5 years, 4 months ago
Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.
Multiplier(k) => Change in income / change in investment = 1/ {1-MPC(c)} where c is the marginal propensity to consume
If MPC = 0.75 and change in income is Rs. 600 crores, then
Multiplier(k) => 600 / change in investment = 1/ {1-MPC(c)}
=> 600 / change in investment = 1/ 1- 0.75
=> 600 / change in investment = 1/ 0.25
=> 600 / change in investment = 4
=> change in investment = 600 / 4 = 150 crores rupees.
Therefore, additional investment is of Rs. 150 crores.
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