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)

Show Hint

Use \(K = \frac{1}{1 - MPC}\) to calculate the investment multiplier. Higher MPC leads to a higher multiplier.
Updated On: Jan 30, 2025
  • 5
  • 4
  • 6
  • 3
Hide Solution
collegedunia
Verified By Collegedunia

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.
Was this answer helpful?
0
0

Questions Asked in CBSE CLASS XII exam

View More Questions