Which of the following must be true to have a closed economy with no government, and yet the value of the investmet multiplier still increase?
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Correct Answer: Option A
Explanation:
Investment multiplier (K) is a function of two factors; The MPS and MPC. If MPC is high, K will also be high but if MPC is low, K will also be low. on the other hand, If MPS is high, K will be low and if MPS is low, K will be high ( since there is an inverse relationship between MPS and K).
Investment multiplier (K) is a function of two factors; The MPS and MPC. If MPC is high, K will also be high but if MPC is low, K will also be low. on the other hand, If MPS is high, K will be low and if MPS is low, K will be high ( since there is an inverse relationship between MPS and K).