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Determination of Income and Employment — Economics STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEconomicsDetermination of Income and Employment3 Marks
Question
What is meant by ‘investment multiplier’? Explain the relationship between marginal propensity to consume and investment multiplier.
✓

Answer

An increase (decrease) in investment results in increase (decrease) in income which is a multiple of the change in investment. This multiple is the investment. multiplier: $\text{K} ={\frac{\triangle {\text{Y}}}{\triangle{\text{I}}}}$ where K is multiplier.
The value of multiplier depends, on MPC as $\text{K} = \frac{1}{\text{1 - mpc}} .$ The higher (lower) the mpc the higher (lower) the value of K.

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