Value of investment multiplier varies between zero and infinity.

True

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False

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Solution

The correct option is B
False

False. Value of investment multiplier varies between one and infinity. The minimum value of investment multiplier is 1. It can never be less than one because MPC is never negative. At least it is = 0, and at most it is = 1.

Case 1: MPC = 0, $M (o r m u l t i p l i e r) = \frac{1}{1 - M P C} = \frac{1}{1 - 0} = \frac{1}{1} = 1$

Case 2: MPC = 1, $M = \frac{1}{1 - M P C} = \frac{1}{1 - 1} = \frac{1}{0} = \infty$

So that, value of M (multiplier) always varies between $1 a n d \infty .$

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Similar questions

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.

Giving reasons state whether the following statements are true or false:

(a) When marginal propensity to consume is zero, the value of investment multiplier will be 1.

(b) If the ratio of marginal propensity to consume and marginal propensity to save is 4: 1, the value of investment multiplier will be 4.

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

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