LS7 - Multiplier Effect

Question 1

Multiplier Effect (k)

Answer 1

An initial increase in injection into the circular flow of income, eventually leads to an even bigger increase in national income.

Question 2

The Multiplier Ratio

Answer 2

A measure of the proportionate change in national income in response to a change injections/withdrawals.

Question 3

Multiplier Effect Equation

Answer 3

k = Change In National Income (Y) / Change In Injections (J)

Question 4

Positive Multiplier

Answer 4

When an initial increase in an injection/decrease in withdrawal leads to a greater final increase in real GDP.

Question 5

Negative Multiplier

Answer 5

When an initial decrease in injection/increase in withdrawal, leads to a greater final decrease in real GDP.

Question 6

Marginal Propensity To Consume (MPC)

Answer 6

The proportion of one additional unit of income that is spent on domestic G+S.

Question 7

Marginal Propensity To Save (MPS)

Answer 7

The proportion of one additional unit of income that is saved.

Question 8

Marginal Propensity To Tax (MPT)

Answer 8

The proportion of one additional unit of income that is taxed to the government.

Question 9

Marginal Propensity To Import (MPM)

Answer 9

The proportion of one additional unit of income that is spent on imports (foreign G+S).

Question 10

Marginal Propensity To Withdraw (MPW)

Answer 10

The proportion of one additional unit of income that’s saved, taxed and spent on imports (withdrawn from the economy).

Question 11

MPC Equation

Answer 11

Change In Consumption/Change In Income

Question 12

MPS Equation

Answer 12

Change In Savings/Change In Income

Question 13

MPT Equation

Answer 13

Change In Taxation/Change In Income

Question 14

MPM Equation

Answer 14

Change In Imports/Change In Income

Question 15

MPW Equation

Answer 15

Change In Withdrawals/Change In Income

Question 16

Multiplier Coefficient (Open Economy)

Answer 16

1/MPW

Question 17

Multiplier Coefficient (Closed Economy)

Answer 17

1/MPS