Question

In a hypothetical economy, if entire additional income is consumed, the value of investment multiplier would be ______.

Options

• One (1)

• Zero (0)

• Between zero (0) and one (1)

• Infinity (∞)

Answer 1

In a hypothetical economy, if entire additional income is consumed, the value of investment multiplier would be Infinity (∞).

Explanation:

If all increased income is utilised, the change in savings = 0.

MPS = 0 in such case

K = `1/(MPS) = 1/0` = Infinity