A change in National Income brought about by a given change in investment Is

Analyze the question: It asks for the term that describes the change in National Income resulting from a given change in investment.

Concept: In Keynesian economics, when investment increases, income rises by a larger amount than the initial injection. This happens because the money spent becomes income for others, who then spend part of it, and so on. The ratio of the change in national income to the change in investment is called the multiplier.

Formula:

Multiplier (k) = ΔY / ΔI

Also, k = 1 / (1 − MPC) = 1 / MPS

Checking the options:

• A. APC (Average Propensity to Consume): This is C/Y, the fraction of total income spent on consumption. It does not link investment to income.
• B. APS (Average Propensity to Save): This is S/Y, the fraction of total income saved. It does not link investment to income.
• C. MPC (Marginal Propensity to Consume): This is ΔC/ΔY, the change in consumption per change in income. It is not the income-investment link.
• D. MPS (Marginal Propensity to Save): This is ΔS/ΔY, the change in saving per change in income. It is also not that link.
• E. The multiplier: This is ΔY/ΔI, which matches the definition exactly.

Example: If MPC = 0.8, then MPS = 0.2 and the multiplier = 1/0.2 = 5. An investment increase of ₦10 million raises national income by ₦50 million.

Answer: E. The multiplier.

Exam tip: Whenever you see "change in income resulting from a change in investment (or any injection)", think multiplier. Remember it as: "Multiplier = ΔY over ΔI", which means income change divided by investment change.