Th2.4: Effects of a Change in AD

Question 1

What does there have to be in order for the multiplier to have the desired effect?

Answer 1

sufficient spare capacity in the economy for extra output to be produced

Question 2

If the AS is perfectly inelastic, like on the classical LRAS curve, then the only impact of the multiplier…

Answer 2

will be to increase price - it will not affect output in the long run but will in the short run

Question 3

The more elastic the curve…

Answer 3

the smaller the effect on price but the bigger the effect on output

Question 4

As with any increase in AD, the effect of the multiplier depends on…

Answer 4

the shape of the AS curve and whether it is short run or long run

Question 5

What will the size of increase in AD depend on?

Answer 5

both the size of the initial increase and the size of the multiplier

Question 6

In general, the multiplier will have a big effect when…

Answer 6

there is plenty of spare capacity in the economy and the MPW is low / MPC is higher