Question

If the value of the Investment Multiplier is 5 and the increase in national income is ₹800 crore, what is the corresponding increase in investment?

• A. ₹100 crore
• B. ₹200 crore
• C. ₹160 crore
• D. ₹250 crore

Answer 1

The Correct Option is C

The Investment Multiplier (\(k\)) is a concept that quantifies the effect of an increase in investment on the national income. It is given by the formula:

\(k = \frac{\Delta Y}{\Delta I}\)

where \(\Delta Y\) is the change in national income and \(\Delta I\) is the change in investment. Given:

• Investment Multiplier (\(k\)) = 5
• Increase in national income (\(\Delta Y\)) = ₹800 crore

We need to find the corresponding increase in investment (\(\Delta I\)). Rearranging the formula for the Investment Multiplier, we get:

\(\Delta I = \frac{\Delta Y}{k}\)

Substitute the given values:

\(\Delta I = \frac{800}{5}\)

\(\Delta I = 160\)

Thus, the corresponding increase in investment is ₹160 crore.