Question

If MPC = 0.75, is the additional investment is required to increase income by Rs 600. The multiplier is .

• A. Rs 100
• B. 4
• C. Rs 150
• D. 5

Answer 1

Answer: (B), (C)

The correct options are
B 4
C Rs 150

M (multiplier) = $\frac{1}{1-\mathrm{MPC}}$= $\frac{1}{1-0.75}$= 4

We know, M = $\frac{\Delta Y}{\Delta I}$

$\Delta I=\frac{\Delta Y}{M}$= $\frac{600}{4}$= 150

Thus, additional investment of Rs 150 is required to increase income by Rs 600 and the value of multiplier is 4.