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Question
What can be the minimum value of investment multiplier?
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Solution
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'.
The minimum value of
the multiplier can be 1 when there is one time change in income or when MPC= 0.
Multiplier(k) = 1/ (1-MPC) = 1/(1-0) = 1/1 = 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'.
The minimum value of
the multiplier can be 1 when there is one time change in income or when MPC= 0.
Multiplier(k) = 1/ (1-MPC)
= 1/(1-0)
= 1/1
= 1
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