Question

If MPC = MPS, then value of multiplier is __________.

• A. Infinity
• B. One
• C. Equal to MPC
• D. Two

Answer 1

The correct option is D Two

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/ MPS(s) where s is the marginal propensity to save.

So if MPS=MPC then ,

We know that MPC + MPS =1

=> 2 MPS= 1

=> MPS= 1/2

=> MPS= 0.5

Multiplier (K) = 1/ MPS= 2 times.

Hence, the value of the multiplier is two.