Investment Multiplier At a Glance

The working of the Multiplier assumes the following process:

multipler-process

Change in investment causes change in income. As a result, consumption changes. Consumption expenditure of one person is an income of the other.

Hence, change in consumption leads to change in income. This process continues till ∆C falls to zero.

MPC is the core factor in the process of income generation. Higher the MPC, greater is the conversion of income into consumption expenditure. Accordingly, greater is the generation of income. As, it is expenditure that is converted into income.

Expenditure is the injection into the income generation process, saving is the leakage.

For Detailed Study -

1. Investment Multiplier

2. Graphic Presentation of Multiplier