1.5 THE MULTIPLIER

Question 1

When does the multiplier effect occur?

Answer 1

When any of the components of aggregate demand initially increase due to a injection.
C,I,G or (X-M)

Question 2

What are the equations?

Answer 2

1/MPW
1/(1-MPC)

Question 3

What is the multiplier

Answer 3

When an initial change in aggregate demand has a much greater final impact on nation income

Question 4

How does the multiplier effect come about?

Answer 4

because of injections of new demand for goods and services into the circular flow of income stimulates further rounds of spending.
In other words “one persons spending is another’s income”- Keynes.

Question 5

What does MPS stand for

Answer 5

MArginal propensity to save

Question 6

What does MPT stand for

Answer 6

Marginal propensity to tax

Question 7

What does MPM stand for

Answer 7

Marginal Propensity to Import

Question 8

Whats the equation for MPW

Answer 8

MPW=MPS+MPT+MPM

Question 9

What does MPC stand for

Answer 9

Marginal propensity to consume

Question 10

What does MPW stand for

Answer 10

Marginal propensity to withdraw