Step 1: Understanding the Concept:
In macroeconomics, the multiplier effect describes how an initial change in spending leads to a proportionately larger change in national income.
Key Formula or Approach:
The Investment Multiplier (\( k \)) is calculated as the ratio of the change in income (\( \Delta Y \)) to the change in investment (\( \Delta I \)):
\[ k = \frac{\Delta Y}{\Delta I} \]
Step 2: Detailed Explanation:
- The question defines the relationship between the final output increase and the initial investment.
- When investment increases, it creates income for factors of production.
- This income is then spent on consumption, creating more income for others.
- This cycle repeats, resulting in a total income increase that is a multiple of the initial investment.
- This specific ratio is termed the Investment Multiplier.
Step : Final Answer:
The definition provided exactly matches the concept of the Investment Multiplier.
Therefore, option (A) is correct.