33) The multiplier

Question 1

What is the multiplier?

Answer 1

The multiplier states that any £1 injection into the economy will cause an increase in national income (GDP) of greater than £1

Question 2

How is the multiplier calculated?

Answer 2

Multiplier = 1 / MPW = 1 / MPS+MPT+MPM = 1 / 1-MPC = 1 / MPS

Question 3

How do you calculate marginal propensity?

Answer 3

MP? = Change in ? / Change in national income

Question 4

When is the multiplier value high?

Answer 4

When:
- There is plenty of spare capacity
- MPM (Import) & MPT (Tax) are low
- High MPC

Question 5

When is the multiplier value low?

Answer 5

When:
- The economy is close to capacity
- MPM (Import) & MPT (Tax) are high