If the ratio of marginal propensity to consume and marginal propensity to save is 8:2, the value of investment multiplier is
Let us assume that MPC = 4x and MPS = 1x, as ratio of MPC and MPS = 4 : 1
MPC + MPS = 1 ⇒4x +1x = 1
5x = 1
x = 0.2 (implying, MPS = 0.2)
Accordingly, 4 × 0.2 = 0.8
In such a case,
M = 1MPC=11−0.8
= 10.2= 5