Question

The ratio of the total increase in equilibrium value of final goods output to the initial increase in autonomous investment expenditure is known as:

• A. Investment Multiplier
• B. Autonomous Multiplier
• C. Credit Multiplier
• D. Induced Multiplier

Hint:

Investment multiplier is: \[ K=\frac{\Delta Y}{\Delta I} \] It measures the total increase in income due to an initial increase in investment.

Answer 1

The Correct Option is A

Concept:
Investment multiplier shows how much total income or output increases due to an initial increase in autonomous investment. It is the ratio of change in income to change in investment. \[ K = \frac{\Delta Y}{\Delta I} \] where, \[ K = \text{Investment Multiplier} \] \[ \Delta Y = \text{change in income or output} \] \[ \Delta I = \text{change in investment} \]
Step 1: Understand the phrase ``initial increase in autonomous investment''.
Autonomous investment is investment that does not depend directly on current income. When autonomous investment increases, it creates new income in the economy.
Step 2: Understand the phrase ``total increase in equilibrium output''.
The initial investment creates income for some people. Those people spend part of their income, which becomes income for others. This process continues and causes a multiple increase in output.
Step 3: Identify the concept.
The ratio: \[ \frac{\text{Total increase in output}}{\text{Initial increase in autonomous investment}} \] is called: Investment Multiplier

Step 4: Final conclusion.
Hence: \[ \boxed{\text{Investment Multiplier}} \] Therefore, the correct answer is: \[ \boxed{\text{(A)}} \]