Question

If MPC = 0, the value of multiplier is __________.

• A. 0
• B. 1
• C. Between 0 and 1
• D. Infinity

Answer 1

The correct option is B 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'.

Multiplier(k) => Change in income / change in investment = 1/ {1-MPC(c)} where c is the marginal propensity to consume.

If MPC = 0, then

Multiplier(k)= 1/(1-0)= 1/1 = 1

Therefore, the value of the multiplier is 1.