2.4.4 The multiplier

Question 1

The multiplier ratio

Answer 1

Multiplier ratio = Total change in Real GDP / initial injection

Question 2

The multiplier effect

Question 3

The downward multiplier

Answer 3

An initial withdrawal out of the circular flow causes a bigger decrease in real national income e.g. a rise in taxation, saving, imports

Question 4

Marginal propensity to consume (MPC)

Answer 4

The increase in consumption following an
increase in income

Question 5

Marginal propensity to save (MPS)

Answer 5

The increase in savings following an increase in
income

Question 6

Marginal propensity to tax (MPT)

Answer 6

The increase in taxation following an increase in income

Question 7

Marginal propensity to import (MPM)

Answer 7

The increase in imports following an increase in
income

Question 8

Marginal propensity to withdraw (MPW)

Answer 8

The increase in leakages following an increase
in income
MPW=MPS+MPT+MPM

Question 9

Calculating multiplier ratio

Answer 9

Multiplier ratio = 1/(MPC-1)
OR
multiplier ratio = 1/MPW
OR
multiplier ratio = 1/(MPS)+(MPI)+(MPT)