Multiplier Flashcards
how is the value of the multiplier determined
by the proportion of any extra income that is consumed and withdrawn
why is the multiplier determined by the proportion of extra income that is consumed and withdrawn
if extra income is consumed, it becomes another’s income in a later time period. The higher the proportion of extra income consumer, the higher the overall change in the economy and the bigger the multiplier
what is the equation for extra income
extra income = extra consumption + extra savings + extra tax paid + extra imports
ΔY = ΔC + ΔS + ΔT + ΔM
what is the acronym for marginal propensity to consume
mpc
what is the marginal propensity to consume
the proportion of extra income consumed in the domestic economy
what is the notation for mpc
ΔC / ΔY
what is the acronym for marginal propensity to save
mps
what is the marginal propensity to save
the proportion of extra income saved
what is the notation for mps
ΔS / ΔY
what is the acronym for marginal propensity to tax
mpt
what is the marginal propensity to tax
the proportion of extra income taxed
what is the notation for mpt
ΔT / ΔY
what is the acronym for marginal propensity to import
mpm
what is the marginal propensity to import
the proportion of extra income that spent on imports
what is the notation for mpm
ΔM / ΔY
what is the acronym for marginal propensity to withdraw
mpw
what is the marginal propensity to withdraw
the proportion of extra income withdrawn (mps + mpt + mpm)
what is the notation for mpw
ΔW / ΔY
what does the size of the multiplier depend on
the extent to which people consume or withdraw any additional income ( The mpc and mpw)
why would the size of the multiplier be low
means more has been withdrawn (higher mpw) so less is in the circular flow (lower mpc)
why would the size of the multiplier be high
means more is consumed (higher mpc) so more remains in the circular flow (lower mpw)
how is a quick way to calculate the value of the multiplier
1 / mpw
OR
1 / 1 - mpc
what is the multiplier
a change in one of the injections that will ceteris paribus lead to a multiplied final change in the equilibrium level of national income
what is the value of the multiplier
ratio of the final change in the national income to the change in the injection
