Question

Discuss the concept of multiplier with the help of a diagram.

Answer 1

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

k= change in income / change in investment.

Here if aggregate demand increases from E to E' owing to change in investment, then Income Increases from Y to Y'.