1.5 Multiplier and the accelerator Flashcards

1
Q

Define the multiplier

A

process by which any changes in the components of AD will lead to an even greater change in national output.

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2
Q

What is the formula for the multiplier

A

1/1-mpc (marginal propensity to consume)

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3
Q

What effect does the multiplier have on AD and equilibrium

A

Makes any changes in AD more volatile

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4
Q

What is the formula for marginal propensity to consume

A

change in consumption/change in income

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5
Q

What effect would a high multiplier have on an injection into the circular flow of income

A

It would increase the amount AD increases via the multiplier effect

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6
Q

What happens to the multiplier effect in the long run as the economy moves to equilibrium

A

The multiplier becomes diluted

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7
Q

Define the accelerator

A

changes in investment can be directly linked to GDP growth

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8
Q

Define output gap

A

the difference between the actual level of real GDP and the full employment level

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9
Q

cause of output gaps

A

caused by a change in AD in relation to the point of full employment,

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10
Q

consequence of output gaps

A

inflationary pressure in the short run

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