Question:
Suppose for a hypothetical economy:
\(C = 100 + 0.75Y\) (where \(C =\) Consumption and \(Y =\) Income)
\(I_0 = 400\) (\(I_0 =\) Autonomous Investment)
Value of Investment Multiplier (\(K\)) would be _________ .
(Choose the correct alternative to fill in the blank)
Suppose for a hypothetical economy:
\(C = 100 + 0.75Y\) (where \(C =\) Consumption and \(Y =\) Income)
\(I_0 = 400\) (\(I_0 =\) Autonomous Investment)
Value of Investment Multiplier (\(K\)) would be _________ .
(Choose the correct alternative to fill in the blank)
Show Hint
Use \(K = \frac{1}{1 - MPC}\) to calculate the investment multiplier. Higher MPC leads to a higher multiplier.
Updated On: Jan 13, 2026
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The Correct Option is B
Solution and Explanation
The formula for the investment multiplier (\(K\)) is:
\[
K = \frac{1}{1 - MPC}
\]
Here, \(MPC = 0.75\):
\[
K = \frac{1}{1 - 0.75} = \frac{1}{0.25} = 4
\]
Hence, the value of the investment multiplier is 4.
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