Page 93 - Macroeconomics. book docx_Neat

11- Importance of the Investment Multiplier

The multiplier:

Explains economic growth

Helps governments design fiscal policy

Shows why investment is powerful

Explains how recessions and booms spread

If: MPC = 0.8, Investment increases by 100, Then: Multiplier = 5

Income increases by 500

Multiple Choice Questions

Q1. In macroeconomics, investment mainly refers to:

A. Buying shares

B. Spending on capital goods

C. Saving income

D. Paying taxes

Answer: B

Q2. Which of the following is an example of real investment?

A. Buying bonds
B. Buying machines for a factory

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