LS7 - The Multiplier

Question 1

Multiplier effect

Answer 1

Injections into circular flow of income eventually lead to an even bigger increase in national income

Question 2

MPS

Answer 2

Proportion of any income saved

Change in savings / change in income

MPC + MPS = 1

Question 3

MPC

Answer 3

Proportion of extra income spent

Change in consumption / change in income

Question 4

MPT and MPM

Answer 4

MPT = proportion of extra income paid as taxes (taxes/income)
MPM = proportion of extra income spent on imports (change in spending on imports/change in income)

Question 5

Marginal propensity to withdraw

Answer 5

MPW = MPS + MPM + MPT
MULTIPLIER = 1/MPW

Question 6

Multiplier evaluation

Answer 6

• It is difficult to measure the exact size of the multiplier
• changes can happen in an economy that change the size of the multiplier very quickly
• the effect of spending is not immediate
• economists disagree with the size of the multiplier and therefore the size of the impact injections would have