Chapter 28 - AE model

Question 1

Multiplier =

Answer 1

Change in real GDP / Change in Aggregate expenditure

1/(1-MPC)

Question 2

MPC =

Answer 2

Change in consumption / Change in income

Question 3

MPS =

Answer 3

1 - MPC
Change in saving / change in income

Question 4

Give the multiplier formula, stating what the different parts represent=

Answer 4

1/(1-[b(1-t) - M)]), where
b = MPC
t = marginal tax
M = Marginal propensity to import

Question 5

Name 3 ways that the multiplier can be increased:

Answer 5

1) increasing MPC
2) Decreasing marginal tax
3) Decreasing marginal propensity to import

Question 6

Autonomous tax multiplier =

Answer 6

-MPC/1-Slope of AE

Question 7

Give the 2 ways to get the slope of AE

Answer 7

1) MPC
2) b(1-t) - M