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
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
