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Question : The investment multiplier is 4. If there is an autonomous increase in investment spending of INR 500, what will be the change in equilibrium income?

Option 1: INR 500
    

Option 2: INR 2,000
 

Option 3: INR 1,000

    

Option 4: INR 2,500


Team Careers360 10th Jan, 2024
Answer (1)
Team Careers360 11th Jan, 2024

Correct Answer: INR 2,000
 


Solution : The correct answer is B) INR 2,000

To calculate the change in equilibrium income, we can use the investment multiplier. The investment multiplier represents the relationship between an autonomous change in investment spending and the resulting change in equilibrium income.

Given that the investment multiplier is 4 and there is an autonomous increase in investment spending of INR 500, the change in equilibrium income can be calculated as follows:

Change in Equilibrium Income = Autonomous Change in Investment * Investment Multiplier

                            = INR 500 * 4

                            = INR 2,000

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