Question

If the value of the investment multiplier is 5, and the increased income is ₹800 crore, find the change in investment.

• A. ₹4000 crore
• B. ₹120 crore
• C. ₹400 crore
• D. ₹160 crore

Answer 1

The Correct Option is C

The investment multiplier \(K=\frac{ΔI}{ΔY}​\), so ΔI=5800​=400 crore.

Answer 2

The investment multiplier is a key concept in economics that measures the change in national income (\(Y\)) resulting from a change in investment (\(I\)). The formula for the investment multiplier is given by:

\[ K = \frac{\Delta I}{\Delta Y} \] Where:

• K is the investment multiplier,
• \(\Delta I\) is the change in investment,
• \(\Delta Y\) is the change in national income.

In this scenario, the change in investment (\(\Delta I\)) is given as 5800, which is equivalent to 400 crore. This indicates that an increase in investment by 400 crore results in an overall change of 5800 units in national income, based on the value of the multiplier.

The investment multiplier is a crucial tool for understanding the impact of investment on the broader economy. A higher multiplier means that an initial increase in investment leads to a proportionally larger increase in national income.