Discussion
From the given diagram, which of the following represents value of investment multiplier :
" + IMG("q249", "Graph of injections and withdrawals against national income: a rising withdrawals line crosses two horizontal injection lines, injections 1 at X and injections 2 at Z, with Y on injections 1 directly below Z", 330) + "Answer: B
In the diagram the investment moves from injections 1 to injections 2, and the equilibrium national income, where injections equal withdrawals, rises from the point X to the point Z. The rise in injections is the vertical distance YZ and the rise in national income is the horizontal distance XY, so the multiplier, the ratio of the rise in income to the rise in injections, is XY/YZ. The answer is option B. At a higher injection level, the multiplier shows how much larger the rise in income is than the rise in injection.
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