1.5 The Multiplier and Accelerator Flashcards
What are the factors that determine the size of the national income multiplier?
Factors include:
* Marginal propensity to consume (MPC)
* Marginal propensity to save (MPS)
* Tax rates
* Import levels
* Level of investment
What is the national income multiplier?
The national income multiplier is a factor that quantifies the change in national income resulting from an initial change in spending.
What is the accelerator in the context of national income?
The accelerator is the concept that investment levels change in response to changes in national income, influencing future production capacity.
How do the national income multiplier and accelerator impact aggregate demand?
Both increase aggregate demand by amplifying the effects of initial changes in spending and investment on the economy.
What is an output gap?
An output gap is the difference between actual and potential output in an economy.
What is the aggregate demand and aggregate supply model?
The model illustrates the relationship between total demand for goods and services and the total supply available in the economy.
What does a production possibility curve (PPC) represent?
A PPC represents the maximum possible output combinations of two goods given available resources and technology.
How do you calculate the average propensity to consume (APC)?
APC is calculated by dividing total consumption by total income.
How do you calculate the marginal propensity to consume (MPC)?
MPC is calculated by dividing the change in consumption by the change in income.
What is the formula for calculating the size of the national income multiplier?
Multiplier = 1 / (1 - MPC)
What are the causes of an output gap?
Causes include:
* Economic shocks
* Changes in consumer confidence
* Policy changes
* Supply chain disruptions
What are the consequences of an output gap?
Consequences include:
* Unemployment
* Inflationary pressures
* Inefficient resource allocation
* Economic growth fluctuations
Fill in the blank: The marginal propensity to save (MPS) is related to the __________.
[marginal propensity to consume]
