The Multiplier (L7) Flashcards

1
Q

Marginal propensity to save

A

Savings / income

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2
Q

Marginal propensity to consume

A

Consumption/ income

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3
Q

MPC + MPS

A

1

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4
Q

Lower income earners have lower or higher MPCs?

A

Higher, when struggling to afford basics, you’re more likely to spend any extra income you get.

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5
Q

Marginal propensity to tax

A

Tax/income

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6
Q

Marginal propensity to import

A

Imports/income

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7
Q

Withdrawals (equation)

MPW

A

Savings +imports + taxation

MPS + MPM + MPT

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8
Q

Multiplier formula

A

1/ marginal propensity to withdraw

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9
Q

Higher multiplier

A

Injections have larger impact on national income so overall increase in AD is higher.

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10
Q

Effects of higher AD

A

Higher output
Higher employment
Higher employment if economy isn’t in recession

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