The multiplier Flashcards
1
Q
The multiplier effect
A
This refers to the increase in national income (GDP) due to an external stimulus such as an increase in demand or spending power. It illustrates how changes in spending can create a ripple effect throughout an economy, generating additional economic activity.
2
Q
Multiplier formula
A
1/1-MPC
E.g. 1/1-0.9=10
3
Q
Components of aggregate demand
A
Consumption+ Investment+ Government spending+(Exports-Imports)
4
Q
What does the multiplier process start with
A
An initial injection in expenditure
