1.5- the multiplier

Question 1

What is the multiplier

Answer 1

A process in which any change in AD results in a final greater change in real GDP

Question 2

What economics theory does the multiplier apply in?

Answer 2

Keynesian

Question 3

What happens if government underestimates the multiplier?

Answer 3

They will overstimulate the economy by increasing AD causing inflation

Question 4

What happens if the gov overestimate the multiplier

Answer 4

With under stimulate the multiplier and GDP will rise by less than expected.

Question 5

Formula for the multiplier

Answer 5

1
MPS + MPT + MPM

Question 6

Accelerator effect

Answer 6

The level of I in an economy is directly related to the rate of change in GDP

Question 7

Output gap

Answer 7

Different between actual and potential output

Question 8

Consequences of a positive output gap

Answer 8

Demand pull inflation
Shortage of labour
Increase CCAC deficit due to rising level of imports

Question 9

Consequences of negative output gap

Answer 9

Unemployment
Low inflation / pot deflation