Question

what is the relationship between investement (business spending) and multiplier?

Answer 1

There is a positive relationship between investment spending and multiplier. A increase in investment spending, is going to increase the real output on the basis of multiplier. So, it is the multiplier that has the ability of increase the impact investment spending. For example, if investment spending increases by $100 and multiplier is 5, then real output increases by $500. So, if the investment spending is fixed, and multiplier changes, then real output also changes in the direction of change in multiplier.