Calculate Multiplier when MPC is 4/5 and 1/2 From the calculation, establish the relation between size of Multiplier and size of MPC.
When MPC `(4)/(5)`
`K=(1)/(1=0.8)=(1)/(0.2)=5`
When MPC=`(1)/(2)`
`K=(1)/(1-0.5)=2`
Observing the same, we may conclude that there exist positive or direct relation between MPC and investment multiplier. Investment multiplier coefficient measures the change in final income with repsect to given change in the change in the initial investment in the economy. It carries direct relation with rate of growth in an economy, i.e. higher the MPC, more change of growth exists in an ecnomy. But, it a two sided sword hence if investment falls in economy the income may also fall.

Explanation

Multiplier `=(1)/(1-MPC)`