. Define multiplier. What is the relation between marginal propensity to consume and multiplier ? Calculate the marginal propensity to consume if the value of multiplier is 4.

ANSWER: Multiplier is the

ratio of increase in national income due to an increase in investment.

MPC and the value of multiplier has direct relationship

. Higher the MPC more will be the value

of multiplier.

Y = C + I

DY= DC + DI

Dividing both sides by

DY, we will obtain

K= 1/1-MPC

Given value of multiplier is 4, then MPC will be

MPC= 0.75

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