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 formula for the investment multiplier (k) is expressed as:

\(k =\frac {ΔY}{ΔI}\)

Where:

• k is the multiplier.
• ΔY is the change in income.
• ΔI is the change in investment.

Given, k = 5 and ΔY = ₹800 crore. We need to find the value of ΔI.

Substitute the given values into the formula:

\(5 = \frac {800}{ΔI}\)

Rearranging to find ΔI:

\(ΔI =\frac {800}{5}\)

Simplifying this calculation gives:

\(ΔI = 160\)

The correct answer to the problem, based on the calculation, is \(₹\ 160\) 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.