2.4.4 Multiplier + Equations

Question 1

What is the calculation for the multiplier ratio?

Answer 1

Question 2

what does the multipler ratio tell us?

Answer 2

how much GDP will increase following an initial injection into the economy

Question 3

what does marginal propensity to consume mean?

Answer 3

how much consumers are willing to spend if given an additional £1
* if homeless man given £1 and spends 80p, them MPC is 0.8
* only consu,ption within our economy

the lower MPC means less likley to spend, more likley to save

Question 4

what is the muliplier effect?

Answer 4

initial injections promote further rounds of spending, causing aggregate demand to increase by more thna the initial injection

Question 5

what is marginal propensity to withdraw?

Answer 5

how much consumers are likley to save if given £1
* MPC+MPW=1

Question 6

What are the four ways of calculating the muliplier ratio?

Question 7

what is marginal propensity to withdraw

Answer 7

• MPW=MPS+MPm(imports)+MPT
• Proportion of additional £1 spent on withdrawals(savings, imports,taxes)

Question 8

Uk exports became cheaper, explain the multipler effect?

Answer 8

1. demand for exports increases (injections)
2. exports are component of AD, AD increases
3. increase in number of people employed to export
4. workers will spend, increasing consumption
5. increasing AD
6. firms with increased revneu from consumption may wish to expand and increase investment
7. increasing AD
8. this may emply more jobs, consumption…………….repeat

Question 9

how could the multipler effect be made larger?

Answer 9

• if MPC was larger
• initial injection is larger

Question 10

marginal propensity to save

Answer 10

the proportion of additional income that is saved

Question 11

marginal propensity to import

Answer 11

the propertion of additional income that is spent on imports

Question 12

define marginal propensity to tax

Answer 12

the proprtion of additional income that is taxed

Question 13

define marginal propensity to consume

Answer 13

the proprtion of additional income that is sepnt on the goods in the economy (consumed)

Question 14

define marginal propensity to withdraw

Answer 14

the proprtion of additional income that is withdrawn from the economy (saved, taxed or spent on imports)

Question 15

what are ‘aggregates’?

Answer 15

refers to ‘totals’
eg: total unemplyment
total spending on goods/services -rather than the spending on a particular good

coz MACRO - so overall picture

Question 16

what is the importance of data?

Answer 16

monitor the performance of the economy.
according to thi observe and judge as to weather performance is satisfactory , and if theories are true

Question 17

what is the function of index numbers?

Answer 17

makes unwieldy data easy to understand

Question 18

How do you calculate index numbers?

Answer 18

Question 19

How do you calculate a price index?

Answer 19