Investment Multiplier

Investment multiplier or output multiplier refers to the number by which change in investment (∆I) multiplies to become change in output/income (∆Y).It is measured as the ratio between change in output/income and change in investment.

K =  ∆Y / ∆I

K = Multiplier

∆Y = Increase in output/income

∆I = Increase in investment

If investment increases by Rs. 15 crore and as a consequence, income increases by Rs. 60 crore, it implies that increase in income (∆Y) is 4 times the increase in investment (∆I).

K =  ∆Y / ∆I

    = 60/15  

K = 4