Chapter 30 Flashcards
1
Q
What is the multiplier process?
A
The multiplier process occurs when an increase in investment or any other injection leads to an even greater increase in income.
2
Q
From what can the multiplier be calculated?
A
The multiplier can be calculated from the marginal propensities to consume, withdraw, save, tax and import.
3
Q
What effect will the multiplier have on aggregate demand?
A
The multiplier will cause aggregate demand to increase by more than the initial increase in investment, government spending or exports.
4
Q
What is the formula for the multiplier?
A
The formula for the multiplier is 1/1-MPC
Which is equal to 1/(MPS + MPT + MPM)
Or 1/MPW
5
Q
What is the formula for a marginal propensity? E.g. S
A
Change in S / Change in Y
