What can be the minimum value of investment multiplier?

The minimum value of the multiplier can be 1 when there is one time change in income or when MPC= 0 and the maximum value of the multiplier can be Infinity when there in infinite times of change in income or MPC=1.

What can be the maximum and minimum value of investment multiplier?

Answer: The maximum value of multiplier is infinity when the value of MPC is 1. It implies that the economy is consuming the entire additional income. The minimum value of multiplier is one when the value of MPC = 0.

What can be the minimum level of investment multiplier?

(i) Minimum value of multiplier is 1 because minimum value of MPC can be zero. (ii) Maximum value of multiplier may be – (infinity) because maximum value of MPC can be 1.

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What is the value of the investment multiplier?

The Size or Value of Investment Multiplier:

The multiplier tells us how much increase in income occurs when autonomous investment increases by Rs. 1, that is, investment multiplier ∆Y/∆I is and its value is equal to 1/1-b where b stands for marginal propensity to consume (MPC).

When investment multiplier is 1 the value of MPC is?

When investment multiplier is 1, the value of marginal propensity to consume is zero.

What is investment multiplier how is its value determined?

The multiplier tells us how much increase in income occurs when autonomous investment increases by Rs. 1, that is, investment multiplier ∆Y/∆I is and its value is equal to 1/1-b where b stands for marginal propensity to consume (MPC).

When MPC 0.6 The multiplier is?

If MPC is 0.6 the investment multiplier will be 2.5.

What increases when MPC increases?

The higher the MPC, the higher the multiplier—the more the increase in consumption from the increase in investment; so, if economists can estimate the MPC, then they can use it to estimate the total impact of a prospective increase in incomes.

What is the relation between MPC and multiplier?

Answer: Multiplier refer to the increment amount of Income due to increase in the investment in the economy, Whereas MPC refers the increment amount of consumption from an unit increase in the income of the person/economy as a whole.

What can be the maximum value of MPS?

It is the ratio between the change in income and its corresponding change in consumption. It can have a maximum value of one, when the whole income increase in saved, as it is percentage change in saving when there is some change in the level of income, which cannot be more than the change in income.

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What is the investment multiplier formula?

The ratio of ΔY to ΔI is called the investment multiplier. It can be derived, as follows, from the equilibrium condition (Y = C + I + G) together with the consumption equation (C = a + bY). … This equation describes the new equilibrium, once the economy has adjusted to the increase in the level of investment.

What is the formula of multiplier?

The multiplier is the amount of new income that is generated from an addition of extra income. The marginal propensity to consume is the proportion of money that will be spent when a person receives a certain amount of money. The formula to determine the multiplier is M = 1 / (1 – MPC).

What is the value of multiplier if MPC is 1 2?

Multiplier (k) = 1/MPS = 1/ 0.5 = 2.

When MPC is zero the value of investment multiplier will be?

When marginal propensity to consume is zero, the value of investment multiplier will also be zero.

What do you mean by investment multiplier?

The term investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy. It is rooted in the economic theories of John Maynard Keynes.

When investment multiplier is 1 the value of MPC is zero Why?

When investment multiplier is 1, the value of marginal propensity to consume is zero. Consider the following equation: K = 1/1-MPC If investment multiplier(K) is 1 we will get, 1=1/1-MPC which implies Marginal propensity to consume(MPC) =0 Thus, the above statement is true.

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