Macro final revision - Multiplier effect

What do changes in injections lead to?

A bigger change in national income

What does the increase in injections have a effect on?

Has a multiplier effect on national income (the multiplier)

How is the multiplier (K) calculated?

Multiplier (K) = Change in income / change in injections

What does MPW and MPC stand for?

MPW = Marginal Propensity to Withdraw

MPC = Marginal Propensity to Consume

What is the multiplier sensitive to?

the Propensities - MPW and MPC

What does MPW + MPC equal?

1

What does a larger MPC mean?

The larger the MPC = the larger the multiplier is

What are two other equations for the multiplier?

Multiplier = 1/MPW

Multiplier = 1/(1-MPC)

How is MPW calculated?

MPW = Change in withdrawals / Change in income

How the larger the MPW is, affect the multiplier effect?

The smaller the multiplier effect (the steeper the withdrawal function)

What does the multiplier look like on a graph, with a shift in injections?

What does the multiplier look like on a graph, with a shift in withdrawals?

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