2.8 The Multiplier Effect Flashcards
What is the Multiplier Effect ?
The proportional change in final income that results from a change in economic activity
What does a Positive Multiplier Mean ?
When an initial Increase leads to a greater final increase in GDP
What does a Negative Multiplier Mean ?
When an initial Decrease leads to a greater final decrease in GDP
What causes the Multiplier Effect ?
An initial change in Aggregate Demand leads to a greater final change in GDP.
What is the Marginal Propensity to Consume (MPC) ?
How much of an income is consumed.
What is the Multiplier Formula ?
1/(1-MPC)
What are the factors that affect the multiplier effect ?
- MPC
- MPS
- Size of Initial Change
What is the GDP ?
Total Value of goods and services produced within a country over an economic period
What is Sustainable Development ?
Promoting economic growth that is environmentally sustainable.
What is Inflation ?
Rate at which the general level of prices for goods and services rises.
How do we adjust nominal GDP for inflation ?
A price deflator so the value of economic output is measured at constant prices.
