Question

Suppose, the saving curve of an economy makes an intercept at a negative value of ₹ 50 crores. In the economy, 20\% of an increase in income is saved.
In the light of the above context, identify the value of investment multiplier (K). (Choose the correct option)

• A. 2
• B. 4
• C. 5
• D. $\infty$ (infinite)

Hint:

Multiplier (K) is the reciprocal of MPS. Higher MPS means a lower multiplier.

Answer 1

The Correct Option is C

The Marginal Propensity to Save (MPS) is 0.20. \[ K = \frac{1}{MPS} = \frac{1}{0.20} = 5 \] Thus, the investment multiplier is 5.