2.1|8 The Multiplier Effect

Question 1

What is the Multiplier Effect ?

Answer 1

The proportional change in final income that results from a change in economic activity

Question 2

What does a Positive Multiplier Mean ?

Answer 2

When an initial Increase leads to a greater final increase in GDP

Question 3

What does a Negative Multiplier Mean ?

Answer 3

When an initial Decrease leads to a greater final decrease in GDP

Question 4

What causes the Multiplier Effect ?

Answer 4

An initial change in Aggregate Demand leads to a greater final change in GDP.

Question 5

What is the Marginal Propensity to Consume (MPC) ?

Answer 5

How much of an income is consumed.

Question 6

What is the Multiplier Formula ?

Answer 6

1/(1-MPC)

Question 7

What are the factors that affect the multiplier effect ?

Answer 7

• MPC
• MPS
• Size of Initial Change

Question 8

What is the GDP ?

Answer 8

Total Value of goods and services produced within a country over an economic period

Question 9

What is Sustainable Development ?

Answer 9

Promoting economic growth that is environmentally sustainable.

Question 10

What is Inflation ?

Answer 10

Rate at which the general level of prices for goods and services rises.

Question 11

How do we adjust nominal GDP for inflation ?

Answer 11

A price deflator so the value of economic output is measured at constant prices.