Which of the following must be true to have a closed economy with no government, and yet the value of the investmet multiplier still increase?
-
Marginal propensity to save has fallen
- Actual investment had fallen
- Average propensity to invest has fallen
- Actual saving has fallen
The correct answer is: A
Explanation
Investment multiplier (K) is a function of two factors; The MPS and MPC. If MPC is high, K will also be high but if MPC is low, K will also be low. on the other hand, If MPS is high, K will be low and if MPS is low, K will be high ( since there is an inverse relationship between MPS and K).