The investment multiplier is equal to which of the following?

Option 1 -> This represents a simple ratio, not the multiplier effect.

Option 2 -> This is the inverse relationship; the multiplier shows change in income relative to change in investment.

Option 3 -> The investment multiplier formula is k = 1/MPS, where MPS is the marginal propensity to save.

Option 4 -> This ratio relates to marginal propensity to consume, not the investment multiplier.

Hence, Option 3: Reciprocal of marginal propensity to save -> The investment multiplier (k) measures how much total income changes in response to a change in investment. It is calculated as k = 1/MPS or equivalently k = 1/(1-MPC). Since MPS + MPC = 1, when MPS is smaller (people save less), the multiplier is larger, meaning investment has a greater impact on income. For example, if MPS = 0.2, then k = 1/0.2 = 5, meaning every $1 increase in investment leads to a$5 increase in total income. -> correct