Question

What is investment multiplier? How is its value determined? What can be its minimum and maximum value?

Answer 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'.

k = Change in income/ change in investment = 1/ Marginal propensity to save = 1/ ( 1- Marginal propensity to consume )