Chapter 21: The multiplier and the accelerator

Question 1

Define multiplier

Answer 1

The ratio of a change in equilibrium real income to the autonomous change that brought it about

Question 2

Define average propensity to consume

Answer 2

The proportion of income that households devote to consumer expenditure

Question 3

Define marginal propensity to consume

Answer 3

The proportion of additional income devoted to consumer expenditure

Question 4

Define marginal propensity to save

Answer 4

The proportion of additional income that is saved by households

Question 5

Define marginal propensity to import

Answer 5

The proportion of additional income that is spent on imports of goods and services

Question 6

Define marginal propensity to tax

Answer 6

The proportion of additional income that is taxed

Question 7

Define Marginal propensity to withdraw

Answer 7

The proportion of additional income that is withdrawn from the circular flow - the sum of the marginal propensities to save, import and tax

Question 8

Define accelerator

Answer 8

A theory by which the level of investment depends upon the change in real output

Question 9

Define output gap

Answer 9

The difference between the actual level of real GDP and the full employment level