Th2.4: Effects on the Economy

Question 1

What does the multiplier mean can happen?

Answer 1

growth can occur quicker - any injections lead to a bigger increase in national income

Question 2

How can injections be used to increase the size of the multiplier?

Answer 2

they can be targeted at those with the biggest MPC

Question 3

Government use changes in spending to influence macroeconomic performance, but…

Answer 3

it is impossible for the government to know the exact effect of their spending as it is difficult to know the size of the multiplier

Question 4

What will there be between the increase in income and the full effect of that increase and why?

Answer 4

a time lag because not everybody will spend the money straight away

Question 5

What will the overall effect on the economy depend on?

Answer 5

the change in AD and the elasticity of the AS curve