4. The Multiplier Flashcards
1
Q
What is the formula for the Keynesian multiplier?
A
k = 1/MPW or 1/(1-MPC)
2
Q
What is the formula for the real world multiplier?
A
k = ΔNY / ΔAD
3
Q
Define the MPS, MPT and MPM.
A
MPS is the marginal propensity to save.
MPT is the marginal propensity to tax.
MPM is the marginal propensity to import.
4
Q
Describe the multiplier effect come about?
A
The multiplier effect happens when an initial increase in autonomous (increase in any of the components of AD) AD will lead to a more than proportionate increase in national income, assuming sufficient spare capacity.
