Question : The investment multiplier is 2. If there is an autonomous increase in investment spending of INR 600, what will be the change in equilibrium income?
Option 1: INR 600
Option 2: INR 1,200
Option 3: INR 1,800
Option 4: INR 2,400
Correct Answer: INR 1,200
Solution : The correct answer is B) INR 1,200
To calculate the change in equilibrium income resulting from an autonomous increase in investment spending, we can use the multiplier effect. The investment multiplier is given as 2.
Given: Investment multiplier (K) = 2
Autonomous increase in investment spending = INR 600
Change in equilibrium income = K * Autonomous increase in investment spending
Change in equilibrium income = 2 * 600
Change in equilibrium income = 1200
Therefore, the change in equilibrium income is INR 1,200.
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