Th2.4: Effects of the Marginal Propensities

Question 1

Marginal propensity to consume

Answer 1

the increase in consumption following an increase in income

Question 2

Marginal propensity to save

Answer 2

the increase in savings following an increase in income

Question 3

Marginal propensity to tax

Answer 3

the increase in taxation following an increase in income

Question 4

Marginal propensity to import

Answer 4

the increase in imports following an increase in income

Question 5

Marginal propensity to withdraw

Answer 5

the increase in leakages following an increase in income

Question 6

Marginal propensity to withdraw equation

Answer 6

MPW = MPS + MPT + MPM

Question 7

What is the multiplier dependent on?

Answer 7

MPC and so can change all the time

Question 8

What does MPC depend on?

Answer 8

any factor that affects consumption

Question 9

The higher the MPC… and why?

Answer 9

the bigger the multiplier as this means more money of income is spent so more money is transferred through the circular flow and less is withdrawn

Question 10

What do the other marginal propensities show?

Answer 10

how much of a change in income is withdrawn from the economy i.e how much is not spent

Question 11

Any factor other than income that affects imports will…

Answer 11

affect MPM and therefore MPC

Question 12

What is the formula for the multiplier?

Answer 12

1 1
—— = ——
(1-MPC) MPW