Investment Multiplier

Step 1: Understanding the Concept:
The investment multiplier shows how many times the national income increases as a result of an initial increase in investment.
Step 2: Key Formula or Approach:
The mathematical relationship is given by:

Step 3: Detailed Explanation:
- If MPC increases, the value of the multiplier ( ) also increases.
- For example, if , then .
- If , then .
This happens because higher consumption leads to higher income for others in a circular flow, multiplying the initial investment effect.
Step 4: Final Answer:
The value of the multiplier is directly proportional to the MPC; the higher the propensity to consume, the higher the multiplier.