The Multiplier (L7) Flashcards
1
Q
Marginal propensity to save
A
Savings / income
2
Q
Marginal propensity to consume
A
Consumption/ income
3
Q
MPC + MPS
A
1
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.
5
Q
Marginal propensity to tax
A
Tax/income
6
Q
Marginal propensity to import
A
Imports/income
7
Q
Withdrawals (equation)
MPW
A
Savings +imports + taxation
MPS + MPM + MPT
8
Q
Multiplier formula
A
1/ marginal propensity to withdraw
9
Q
Higher multiplier
A
Injections have larger impact on national income so overall increase in AD is higher.
10
Q
Effects of higher AD
A
Higher output
Higher employment
Higher employment if economy isn’t in recession