2.4.4 The Multiplier Flashcards
1
Q
What is the multiplier
A
When an initial injection in the economy causes a bigger final increase in national income
2
Q
How to calculate the multiplier
A
Change in Real GDP / Change in injection
3
Q
What is the size of the multiplier determined by
A
the size of withdrawals from the circular flow
4
Q
What is the Marginal propensity to consume (MPC)
A
proportion of an increase in income that gets spent on consumption
5
Q
What is the Marginal propensity to withdraw (MPW)
A
proportion of an increase in income that is withdrawn from the circular flow
MPW =MPS (saved) +MPT (taxation) +MPM(imports)
6
Q
How is the multiplier related to MPW
A
inversely proportional
1/MPW
