Question:

Suppose for a hypothetical economy: 
C=100+0.75YC = 100 + 0.75Y (where CC = Consumption and YY = Income) 
I0=400I_0 = 400 (I0I_0 = Autonomous Investment) 
Value of Investment Multiplier (KK) would be ____________ . 
 

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Use the formula K=11MPCK = \frac{1}{1 - MPC} and substitute the value of MPCMPC given in the question.
Updated On: Jan 29, 2025
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The Correct Option is B

Solution and Explanation

The investment multiplier (KK) is calculated as: K=11MPC K = \frac{1}{1 - MPC} where MPCMPC (Marginal Propensity to Consume) is 0.750.75. Substituting: K=110.75=10.25=4 K = \frac{1}{1 - 0.75} = \frac{1}{0.25} = 4
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