FREE IGNOU BECC-133 SOLVED ASSIGNMENT 2023-24
Answer the following Short Category questions in about 200 words each. Each question carries 6 marks.
6. Investment Multiplier: The investment multiplier is a concept in macroeconomics that describes the magnified impact of changes in investment on overall economic output. It quantifies how a change in autonomous investment (initial increase or decrease in investment) can lead to a much larger change in the Gross Domestic Product (GDP). The formula for the investment multiplier is:
Investment Multiplier = 1 / (1 – MPC)
Where MPC is the marginal propensity to consume, representing the portion of any additional income that is spent.
Given MPC = 0.6, the investment multiplier would be:
Investment Multiplier = 1 / (1 – 0.6) = 1 / 0.4 = 2.5
This means that a change in investment will have a 2.5 times larger impact on the economy’s GDP due to the multiplier effect. For instance, if there is an initial increase in investment of $100 million, the total increase in GDP would be $100 million * 2.5 = $250 million.
