The Multiplier

Question 1

Multiplier effect

Answer 1

A change in expenditure causes a greater final change in real GDP

Question 2

When might the size of a multiplier be small?

Answer 2

When they are lots of leakages that are large out of the circular flow of income

Question 3

Marginal Propensity to Withdraw

Answer 3

Proportion of change in income that leaks out of the circular flow of income

Question 4

MPW

Answer 4

MPS + MRT + MPM

Question 5

Marginal propensity to save

Answer 5

• high when there is a lower level of confidence in an economy
• low when low interest rates
• bigger MPS means lower multiplier

Question 6

Marginal Rate of Taxation

Answer 6

• smaller MRT means higher multiplier

Question 7

Marginal Propensity to Import

Answer 7

• smaller MRI means higher multiplier

Question 8

How to calculate the multiplier

Answer 8

• 1/MPW
• 1/(MPS + MPM + MRT)
• 1/(1 - MPC)

Question 9

Average propensity to withdraw

Answer 9

Measures the ratio of withdrawals to total income

Question 10

APW

Answer 10

APS + APT + APM

Question 11

Average propensity to save

Answer 11

Proportion of total income that is saved
- savings / income

Question 12

Average propensity to tax

Answer 12

Proportion of total income that is taxed
- savings / income

Question 13

Average propensity to import

Answer 13

Proportion of total income that is spent on imports
- imports / income