Question

From the figure, an increase in investment by __________ leads to an increase in income from $OY$ to $O{Y}^{\prime }$.

• A. $E{E}^{\prime }$
• B. $E^{\prime }M$
• C. $EM$
• D. None of the above

Answer 1

The correct option is B $E^{\prime }M$

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'.

So if investment increases by E'M then it leads to an increase in income by OY'.