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Macro final revision - Multiplier effect
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1
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What do changes in injections lead to?
A bigger change in national income
2
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What does the increase in injections have a effect on?
Has a multiplier effect on national income (the multiplier)
3
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How is the multiplier (K) calculated?
Multiplier (K) = Change in income / change in injections
4
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What does MPW and MPC stand for?
MPW = Marginal Propensity to Withdraw
MPC = Marginal Propensity to Consume
5
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What is the multiplier sensitive to?
the Propensities - MPW and MPC
6
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What does MPW + MPC equal?
1
7
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What does a larger MPC mean?
The larger the MPC = the larger the multiplier is
8
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What are two other equations for the multiplier?
Multiplier = 1/MPW
Multiplier = 1/(1-MPC)
9
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How is MPW calculated?
MPW = Change in withdrawals / Change in income
10
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How the larger the MPW is, affect the multiplier effect?
The smaller the multiplier effect (the steeper the withdrawal function)
11
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What does the multiplier look like on a graph, with a shift in injections?
12
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What does the multiplier look like on a graph, with a shift in withdrawals?
13
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What is the income and expenditure approach? (three facts)
The MPC determines the slope of E function
The steeper the slope of the E function, the larger the size of the multiplier
The larger the MPC, the larger the size of the multiplier
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