Multiplier Effect

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7 Terms

1
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Marginal Propriety to Consume

Change in Consumption/Change in Income

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Marginal Propriety to Save

Change in savings/Change in Income

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Spending Multiplier

1/MPS or 1/1-MPC

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Tax multiplier

-MPC/MPS

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Change in rGDP

Change in Gov’t [spending or taxes] x [spending or tax mult]

6
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Sticky Wages

During a recession: wages must stay the same which leads to a layoff of workers.

During inflation: wages stay the same due to contracts but demand for them to rise and adjust increases.

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