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2.4: National Income > 2.4.4: The Multiplier > Flashcards

2.4.4: The Multiplier Flashcards

1
Q

What is the multiplier?

A
  • refers to how an initial increase in AD leads to an even bigger increase in national income
  • (or) The multiplier ratio is the ratio of change in real income to the injection that created the change
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2
Q

What is the formula of the multiplier?

A
  • 1/ 1-MPC
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3
Q

What is the Marginal Propensity to Consume (MPC)?

A
  • refers to the proportion of extra income is spent
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4
Q

What is the formula for MPC?

A
  • Increase in Consumption/ Increase in Income
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5
Q

What idea is the multiplier process based on?

A
  • On the idea that one individual’s spending is another individual’s income
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6
Q

What is the negative multiplier effect?

A
  • When injections into the economy are reduced/ when there are more withdrawals from the economy
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7
Q

What is the marginal propensity to save?

A
  • the proportion of extra income that is saved
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8
Q

What is the formula for MPS?

A
  • Change in Savings/ Change in Income
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9
Q

What is the marginal propensity to tax?

A
  • refers to the proportion of extra income that is paid in tax
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10
Q

What is the formula for MPT?

A
  • Change in tax/ Change in Income
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11
Q

What is the marginal propensity to import?

A
  • refers to the proportion of additional income that is spent on imports
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12
Q

What is the formula of MPM?

A

Change in Imports/ Change in Income

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13
Q

What is the formula of the multiplier in regards to withdrawals?

A
  • 1/ MPW
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14
Q

What is the marginal propensity to withdraw?

A
  • The extra income withdrawn from the circular flow of income
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15
Q

How can MPW be calculated?

A
  • MPS + MPT + MPM
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16
Q

How do withdrawals affect the multiplier?

A
  • The greater the withdrawals, the smaller value of the multiplier (and vice versa)
17
Q

How does MPC affect the multiplier?

A
  • The greater MPC, the greater the value of the multiplier ( and vice versa)
18
Q

How do taxes affect the multiplier?

A
  • If taxes increase, the value of the multiplier reduces

2.4: National Income (3 decks)

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