The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called:
The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called:
Solution
Option 1 -> Money Multiplier refers to the banking system's ability to create money from reserves, not related to output and autonomous expenditure.
Option 2 -> GDP Multiplier is not a standard economic term for this concept.
Option 3 -> Investment Multiplier correctly defines the ratio of change in equilibrium output to change in autonomous expenditure.
Option 4 -> Tax Multiplier specifically measures the impact of tax changes on income, not autonomous expenditure in general.
Hence, Investment multiplier -> The investment multiplier (also called expenditure multiplier or Keynesian multiplier) measures how much the equilibrium level of national income/output changes in response to a change in autonomous expenditure (such as investment, government spending, or exports). The formula is k = ΔY/ΔI, where ΔY is the change in output and ΔI is the change in autonomous investment. For example, if MPC = 0.8, the multiplier would be 1/(1-0.8) = 5, meaning a ₹100 increase in investment leads to ₹500 increase in total output -> correct
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