2.4

Question 1

What’s the Multiplier Effect?

Answer 1

Changes in Government Spending and taxation. Initial injection into the circular flow which then causes a bigger final increase in national income e.g. increases exports,investment or gov studies.(the effect on national income and product of an exogenous (having an external cause or origin )increase in demand. )

Question 2

What’s the Multiplier Coefficent (equation)?

Answer 2

Multiplier Coefficient= Final Change in Real GDP/Initial Change in AD

Question 3

If Multiplier Effect increases what happens to the GDP?

Answer 3

If Multiplier Effect Increases so will the GDP

Question 4

What’s the circular flow of income?

Answer 4

It’s a fundamental concept in economics that illustrates how many goods and services circulate within an economy between households, businesses and the government.

Question 5

What are the two parts of the circular flow of income?

Answer 5

Injections and leakages

Question 6

What are examples of injections into the circular flow of income?

Answer 6

-Government Spending
-Foreign Direct Investment
-Exports
-Domestic Investment

Question 7

What are examples of leakages in the circular flow of income?

Answer 7

-Taxation
-Imports
-Overseas Aid
-Savings

Question 8

If there is an overflow in the Circular flow of income what happens?

Answer 8

Inflation

Question 9

What are the four factors of production?

Answer 9

C-Capital
E-Enterprise
L-Labour
L-Land

Question 10

If consumption falls what happens to the overall income?

Answer 10

The overall income decreases as company’s want to be able to keep wages the same due to decrease in consumption =less pay for workers

Question 11

If more money is leaving (leakages) than entering (injections) the circular flow of income what happens to the GDP?

Answer 11

The GDP will tend to fall if there is more money leaving than entering

Question 12

If more money entering (injections) than is leaving (leakages) the circular flow of income what happens to the GDP?

Answer 12

The GDP will tend to rise as there is more entering than leaving

Question 13

What’s the multiplier effect?

Answer 13

When there’s an initial change in spending whether it’s from consumers, businesses or the government leads to a larger more widespread final impact on an economy’s total output or income.

Question 14

What’s an example of a multiplier effect?

Answer 14

When a persons spending increases= increase in income of another person= them spending more on goods and services = additional demand= businesses increase production+ hire more workers = higher factor incomes

Question 15

What do MPC,MPS,MPT,MPM,MPW stand for?

Answer 15

MPC-Marginal Propensity to Consume
MPS-Marginal Propensity to Save
MPT-Marginal Propensity to Tax
MPM-Marginal Propensity to Import
MPW-Marginal Propensity to Withdraw

Question 16

What is the multiplier effect dependent on?

Answer 16

Marginal Propensity to Consume because the bigger the MPC, the bigger the multiplier effect.

Question 17

What’s the Multiplier effect equation?What does this tell us?

Answer 17

1/(1-MPC)
Tells us how much of an impact and injection will have on the economy

Question 18

What will the multiplier do to AD?

Answer 18

Will increase AD as the more consumption the more demand