Frequent question: What is the minimum and maximum value of investment multiplier?

(i) Minimum value of multiplier is 1 because minimum value of MPC can be zero. (ii) Maximum value of multiplier may be – (infinity) because maximum value of MPC can be 1.

What can be the minimum value of investment?

A minimum investment is the smallest dollar or share quantity that an investor can purchase when investing in a specific security, fund, or opportunity. A hedge fund, for example, may require that their clients deposit at least $100,000 with the firm. Or, a mutual fund may require at least $3,000 to be invested.

What is the minimum value of MPS?

Since MPS is measured as ratio of change in savings to change in income, its value lies between 0 and 1. Also, marginal propensity to save is opposite of marginal propensity to consume.

What is the minimum and maximum value of K in economics?

Value of K depends upon value of MPC or MPS. We know size of MPC cannot be negative, it can be, at the most, zero (minimum value) and maximum value can be 1.

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What is the maximum value of multiplier?

The maximum value of multiplier is infinity when the value of MPC is 1. It implies that the economy is consuming the entire additional income. The minimum value of multiplier is one when the value of MPC = 0.

What is the Investment multiplier?

The term investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy.

Why is the minimum value of multiplier 1?

(i) Minimum value of multiplier is 1 because minimum value of MPC can be zero. (ii) Maximum value of multiplier may be – (infinity) because maximum value of MPC can be 1.

What is the range maximum and minimum values of APC?

The maximum value of APC can be more than 1 but never be zero while the value of APS can be less than 1, can be zero, but not more than 1 or 1. Explanation: APC is defined as the ratio of the consumption expenditure to the income. While in the case of APS, it is defined as the ratio of the savings to the income.

Can the value of MPC be less than 0?

The above example shows that with increase in income, consumption expenditure also increases (i.e., MPC > 0) but the entire increase in income is not spent on consumption (i.e., MPC < 1). Hence, the value of MPC always lies between 0 and 1. It means 0 < MPC < 1.

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When MPC is 1 value of multiplier?

We know, k=1/1-MPC if MPC=1 , then k will be infinity. option 4 is the correct answer.

What is the value of MPS when the value of multiplier is maximum?

Consider the following equation; k=1/1-MPC (where k is investment multiplier and MPC is Marginal propensity to consume.) the value of multiplier will be maximum when the value of MPC is maximum because there exists a positive relationship between the two. So, when MPC=1 , the value of multiplier will be infinity.

What is the multiplier formula?

The multiplier is the amount of new income that is generated from an addition of extra income. The marginal propensity to consume is the proportion of money that will be spent when a person receives a certain amount of money. The formula to determine the multiplier is M = 1 / (1 – MPC).

How do you calculate investment multiplier?

The Size or Value of Investment Multiplier:

Thus, multiplier =∆Y/∆I =1/ 1-b equals marginal propensity to save (MPS) the value of investment multiplier is equal to 1/1-b = 1/s where s stands for marginal propensity to save.

Is value of investment multiplier varies between zero and infinity?

Here, if MPC is 0 , the value of investment multiplier will be 1 and if MPC is 1 , the value of investment multiplier will be infinity ( the value of MPC ranges from 0 to 1). …

What is the value of multiplier if MPC is 1 2?

Explanation: Multiplier (k) = 1/MPS = 1/ 0.5 = 2.