Multiplier Effect

Marginal Propriety to Consume

Change in Consumption/Change in Income

Marginal Propriety to Save

Change in savings/Change in Income

Spending Multiplier

1/MPS or 1/1-MPC

Tax multiplier

-MPC/MPS

Change in rGDP

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

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.