The Multiplier Effect Flashcards
1
Q
Calculating The Multiplier
A
1/(1-MPC) and 1/MPW where MPW=MPS+MPT+MPM
MPC - Marginal Propensity to Consume MPW - MP to withdraw MPS - MP to save MPT - MP to tax MPM - MP to import
2
Q
Multiplier Effect
A
An increase in investment (or other injection) that leads to an even great increase in income
3
Q
Accelerator Effect
A
When the economy is growing, and we are in period of boom (consumer demand is high) businesses will increase investment to meet the extra demand. This process is called the accelerator effect.
