pre learning week 6

Question 1

what is the multiplier effect

Answer 1

one of the most important concepts you can use when applying, analysing and evaluating the effects of changes in government spending and taxation - also good to use when analysing changes in exports and investment on wider macroeconomic objectives

Question 2

when does the multiplier effect occur

Answer 2

when an initial injection into the circular flow causes a bigger final increase in real national income.

Question 3

what is the multiplier coefficient

Answer 3

final change in real GDP / initial change in AD

Question 4

when does the multiplier effect arise

Answer 4

when one agents spending is another agents income. When a spending project creates new jobs for example, this creates extra injections of income and demand into a countries circular flow.

Question 5

when is the multiplier effect high

Answer 5

when a project is labour - intensive and when equipment and other inputs are sourced domestically.

Question 6

when is the multiplier effect low

Answer 6

when a project is not labour - intensive and equipment and inputs aren’t sourced domestically.