Multiplier

Question 1

Define multiplier process

Answer 1

When an initial injection leads to larger proportionate rise in economic growth

Question 2

What is meaning of marginal

Answer 2

Extra

Question 3

What does MPC measure

Answer 3

Measures the proportionate of extra income that is spent on consumption

Question 4

Formula for MPC

Answer 4

Spent/extra income

Question 5

If MPC increases what happens to the multiplier

Answer 5

if mpc increases then multiplier increases

Question 6

Formula for MPS

Answer 6

Saved/extra

Question 7

If MPS increases what happens to the multiplier

Answer 7

Multiplier decreases because less is spent - withdrawal

Question 8

If MPM increases what happens to the multiplier

Answer 8

multiplier decreases as its a withdrawal

Question 9

If MPT increases what happens to the multiplier

Answer 9

multiplier decreases as its a withdrawal so less DP

Question 10

What does multiplier ratio mean to you

Answer 10

Its basically ratio between the rise in national income to the initial AD/injection.

So number of times that National Income is higher than the initial injection

National income means economic growth

Link to multiplier process

Question 11

What is the formula for Multiplier ratio FOR INJECTIONS

Answer 11

1 / 1 - MPC

Question 12

What is the formula for Multiplier ratio FOR WITHDRAWALS

Answer 12

1/ MPW

Question 13

What does MPW mean

Answer 13

MPW - Savings,tax,imports

WITHDRAWALS

Question 14

What are the 4 effects of multiplier on the economy

Answer 14

1. Unemployment decreases as growth increases so demand for labout increases.
2. More workers therefore household incomes rise so consumption increases
3. Inflation increases as more DP, so more consumption, Rise in AD.
   Pulling inflation up
4. BOP - More growth can cause exports to decreases as theyre more expensive so less internationally competitive.