Question

Keynes multiplier theory establishes the relationship between

• A. Investment and total income
• B. Income and consumption
• C. Saving and investment
• D. None of these

Hint:

The multiplier effect shows that a change in investment has a magnified impact on total income. Think of it as a ripple effect: one person's spending becomes another's income, which is then re-spent.

Answer 1

The Correct Option is A

The Keynesian multiplier (or investment multiplier) demonstrates how an initial change in autonomous spending, particularly investment, leads to a much larger final change in total national income. The theory establishes a direct relationship between an initial injection of investment and the resulting overall increase in income. For example, if an investment of \$100 million leads to a total increase in national income of \$400 million, the multiplier is 4. The size of the multiplier itself depends on the marginal propensity to consume (MPC).