The Multiplier (L7)

Question 1

Marginal propensity to save

Answer 1

Savings / income

Question 2

Marginal propensity to consume

Answer 2

Consumption/ income

Question 3

MPC + MPS

Answer 3

1

Question 4

Lower income earners have lower or higher MPCs?

Answer 4

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

Question 5

Marginal propensity to tax

Answer 5

Tax/income

Question 6

Marginal propensity to import

Answer 6

Imports/income

Question 7

Withdrawals (equation)

MPW

Answer 7

Savings +imports + taxation

MPS + MPM + MPT

Question 8

Multiplier formula

Answer 8

1/ marginal propensity to withdraw

Question 9

Higher multiplier

Answer 9

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

Question 10

Effects of higher AD

Answer 10

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