Determination of Income and Employment

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Investment multiplier (K) is the ratio of change in income (Δ Y) due to change in investment (Δ I).
K = ΔY/ΔI  or K = 1/1-MPC   or  K = 1/MPS
Value of investment multiplier lies between 1 to infinity.
Working of Multiplier: Multiplier process can be explained as the change in investment leads to change in income which further leads to change in consumption expenditure. This again results into further change in income. This process continues till consumption expenditure becomes zero. The resultant increase in income depends upon the existing MPC which determines the value of K. K = 1/1-MPC or K = 1/MPS.

Investment multiplier (K) is the ratio of change in income (Δ Y) due to change in investment (Δ I).
K = ΔY/ΔI  or K = 1/1-MPC   or  K = 1/MPS
Value of investment multiplier lies between 1 to infinity.
Working of Multiplier: Multiplier process can be explained as the change in investment leads to change in income which further leads to change in consumption expenditure. This again results into further change in income. This process continues till consumption expenditure becomes zero. The resultant increase in income depends upon the existing MPC which determines the value of K. K = 1/1-MPC or K = 1/MPS.