If MPC =1, the value of multiplier is ________.

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Between 0 and 1

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Infinity

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

Open in App

Solution

The correct option is D Infinity
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 = 1, then
Multiplier(k)= 1/(1-1)= 1/0 = Infinity.
Therefore, the value of the multiplier is infinity.

Suggest Corrections

Similar questions

There is a direct relationship between MPC and value of investment multiplier.

If MPC = 0.9, then value of multiplier will be :

State whether the following are true or false. Give reasons:

(a) At zero level of income, savings are positive.

(b) The relationship between multiplier and MPC is inverse and that with MPS is direct.

(d) The value of MPS can be negative.

Join BYJU'S Learning Program