Investment Multiplier

To determine the relationship between the Marginal Propensity to Consume (MPC), the Marginal Propensity to Save (MPS), and the investment multiplier (K), we need to understand the concept of the multiplier in economics. The multiplier (K) is calculated using the formula:

Where:

• MPC: Marginal Propensity to Consume
• MPS: Marginal Propensity to Save, and MPS = 1 - MPC

Given that MPC > MPS, it implies:

• MPC > (1 - MPC)

Therefore, if MPC > 0.5, then:

Substituting any value more than 0.5 for MPC (e.g., 0.6):

Hence, when MPC > MPS, the value of K is greater than 2.

Therefore, the correct answer is: K > 2

• Investment Multiplier ( ) = 5
• Increase in national income ( ) = ₹800 crore