KEYNES Investment multiplier

Here explains the keynesian concept of investment multiplier both diagrametically and algebaricaly

1. Investment multiplier Nasiya V K

2. Introduction Keynes’ multiplier Income multiplier It shows change in income to the change in investment expenditure When there is an increment of investment income will increase by an amount which is ‘K' times the increment in investment. ∆Y=K.∆I K=∆Y/∆I K- investment multiplier

3. FEATURES OF MULTIPLIER 1 . It is a cumulative process 2. The value of multiplier depends on the MPC The value of multiplier varies directly with the size of MPC The value of multiplier varies between 1 and infinity When MPC =0. K=1 If MPC = 1 K=infinity K=1/1-MPC

4. Proof Y=C+I ∆Y=∆C+∆I Since C= c∆Y . Here C= MPC ∆Y= c∆Y +∆I ∆Y- c∆Y =∆I ∆Y(1-c)=∆I ∆Y=∆I/(1-c) ∆Y/∆I=1/(1-c) K= 1/1-MPC

5. Graphical illustration of the multiplier effect

6. Operation of the multiplier Backward and forward When investment increases it operates in a forward Direction When investment declines it operates in a backward direction.

7. Thank you