Multiplier Base Model

Question 1

What is the Keynesian Multiplier?

Answer 1

A Keynesian multiplier is a theory that states the economy will flourish the more the government spends.
According to the theory, the net effect is greater than the dollar amount spent by the government.

Question 2

What is the formula for the Keynesian Multiplier?

Also known as Mult, or Income/Spending Multiplier.

Answer 2

Mult = 1 / 1 - MPC

Question 3

What is the formula for the Saving Multiplier?

Answer 3

Mult = 1 / MPS

Question 4

What is the formula for Consumption?

Answer 4

Consumption = Autonomous Consumption + MPC (Y)

Question 5

What is the formula for Aggregate Expenditure?

Answer 5

AE = C + Intended Investment + G + ( X - M )

Question 6

What is the formula for the Fiscal Multiplier?

Answer 6

Mult (Triangle(G))

Question 7

What is the formula for Tax Multiplier?

Answer 7

• (Mult) (MPC) (^T)

Question 8

What is the formula for Disposable Income?

Answer 8

Yd = Y - T + TR

Question 9

What is the formula for the Money Multiplier?

Answer 9

Money Supply / Money Base

Question 10

What is the Paradox of Thrift?

Answer 10

Paradox of thrift refers to contrasting implications of savings to households and to economy as a whole. The paradox states that an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving.

Question 11

What is Equilibrium Income?

Answer 11

Equilibrium just defines a situation in which output, spending and income are in balance.
AD = AS
In Equilibrium:
Leakages = Injections 
S = I
Y = AE

Question 12

What is Equilibrium Savings?

Answer 12

Saving = Investment