3.2 Spending and Tax Multipliers - fiveable AP MACRO

Multiplier effect

The idea that an initial change in spending will set off a spending chain that is magnified in the economy.

Marginal propensity to consume (MPC)

How much people consume rather than save when there is a change in income.

Marginal propensity to save (MPS)

How much people save rather than consume when there is a change in income.

spending multiplier

The spending multiplier is the number we use to identify the total change in spending we will see after the initial spending.

we increase imports, it actually

decreases real gdp

increase in imports, there is a decrease

in the maximum amount of spending

increase exports, we increase

real gdp

increase in exports, we see an increase

maximum change in spending.

tax multiplier

used to determine the maximum change in spending when the government either increases or decreases taxes.

he tax multiplier will always be

less than the spending multiplier.