. 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
Y = C + I
DY= DC + DI
Dividing both sides by
DY, we will obtain
Given value of multiplier is 4, then MPC will be