Multiplier and accelerator

Question 1

Multiplier effect

Answer 1

An initial change in a component of AD, leads to a greater than proportional increase in AD.

Question 2

Multiplier effect formula

Answer 2

K = 1 / 1 - MPC
or
K = increase in national incomes / increase in spending

Question 3

Marginal propensity to consume (MPC)

Answer 3

The fraction of a rise in disposable income spent on goods and services.

Question 4

Factors affecting the value of a multiplier

Answer 4

1 = MPC + MPT (tax) + MPM (imports) + MPS (saving)

Elasticity of supply on real GDP

Question 5

Accelerator effect

Answer 5

A rise in real national income leads to a proportional larger rise in investment spending.

Question 6

Factors affecting income saved - Accelerator effect

Answer 6

Taxation on incomes
Real interest rate
Inflation rates
Availability of credit
Consumer confidence