4.4 The Multiplier

Question 1

What is the multiplier effect?

Answer 1

A change in one AD component can lead to a larger final change in GDP

Question 2

Multiplier formulas?

Answer 2

1) 1/MPS
2) 1/ (1-MPC)

Question 3

What is MPT?

Answer 3

Proportion of additional income paid to govt as tax

Question 4

What does the multiplier effect depend on?

Answer 4

Levels of MPS and MPC

Question 5

Higher X value when:

Answer 5

• Spare capacity
• Low leakages
• High MPC

Question 6

Low X value when:

Answer 6

• Close to capacity
• High leakages
• Higher inflation