If Marginal Propensity to Consume (MPC) is 0.75, what will be the value of Investment Multiplier ?
(
This question was previously asked in
Shift 07/06/2023 3:30 PM - 6:30 PM
A
4
B
1.67
C
2
D
5
Correct Answer
4
Detailed Explanation
The investment multiplier is used to determine the total increase in real GDP that results from an initial increase in investment. It is calculated using the formula:
Multiplier = 1/1 - MPC
Given that the Marginal Propensity to Consume (MPC) is 0.75, we can substitute this value into the formula:
Multiplier =1/1 - 0.75 =1/0.25 = 4
Therefore, the value of the Investment Multiplier is 4, which corresponds to option (1).
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