2.4.4 - the multiplier

Question 1

What is the multiplier process?

Answer 1

An increase in investment or any other injection leads to an even greater increase in income. Causes aggregate demand to increase by more than the initial increase in investment.

Question 2

How is the multiplier calculated?

Answer 2

1/1-mpc or 1/mps

Question 3

How do interest rates affect the multiplier value?

Answer 3

Increased interest rates = decreased mpc = decreased multiplier.

Question 4

How do taxes affect the multiplier value?

Answer 4

Increased taxes = increased mpt = decreased multiplier