AD and the level of economic activity Flashcards
1
Q
Multiplier effect
A
A change in one of the components of AD can lead to a multiplied final change in the equilibrium level of GDP
2
Q
Multiplier ratio
A
Total change in real GDP = injection X multiplier
3
Q
The multiplier is larger when…
A
Withdrawals from the circular flow are smaller
4
Q
Formula for multiplier
A
Multiplier= 1/[1- marginal propensity to consume]
i.e 1/MPW
5
Q
Factors affecting the value of the multiplier effect
A
- speck capacity
