The correct option is 2 and 3 only.
Explanation
The investment multiplier is a central concept in Keynesian macroeconomics. It describes the phenomenon where an initial increase in autonomous expenditure (such as investment or government spending) leads to a more than proportionate increase in the final level of national income.
Statement 1 is Incorrect:
The fundamental principle of the multiplier is that the total increase in national income is greater than the initial increase in autonomous expenditure, not equal to it. This occurs because the initial spending becomes income for others, who then spend a portion of it, creating a chain reaction. Mathematically, $\Delta Y = k \cdot \Delta I$, where $k > 1$ (assuming the Marginal Propensity to Consume is between 0 and 1).
Statement 2 is Correct:
The multiplier mechanism operates through a dynamic adjustment process. An initial injection of expenditure creates excess demand in the economy (Aggregate Demand > Aggregate Supply). To meet this demand, producers increase output, which generates income. This new income induces further consumption spending. This process continues in successive rounds-with the magnitude of spending decreasing each time due to savings leakages-until the new equilibrium is reached and the excess demand is eliminated.
Statement 3 is Correct:
The magnitude of the multiplier effect is directly determined by the Marginal Propensity to Consume (MPC), which is the proportion of additional income that is spent on consumption. The formula for the multiplier is $k = \frac{1}{1 - MPC}$. If people consume a larger proportion of their additional income (higher MPC), the leakage into savings is smaller, the chain of spending is sustained longer, and the resulting multiplier effect is larger.
Key Takeaway:
The investment multiplier ($k$) quantifies the relationship between an initial injection of spending and the final increase in National Income. Its value depends positively on the Marginal Propensity to Consume (MPC) and negatively on the Marginal Propensity to Save (MPS).