Full AE model + Multiplier Flashcards

1
Q

Autonomous change

A

Any autonomous change is caused by a factor other than a change in the level of income
It is independent of the level of income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Induced change

A

Related to a change in the level of income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Multiplier effect

A

Any autonomous change in a component of AE will lead to a change in the level of economic activity greater than the initial autonomous change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What an autonomous change leads to

A

An autonomous increase in a component of AE leads to an upward shift of the AE curve. Causing a new equilibrium level of income and output to be established at a higher level of economic activity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Reference to model

A

A movement from AE to AE1 resulting in an increase in the equilibrium level of income from Ye to Ye1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Relation to the multiplier

A

This increase in economic activity is greater than the initial autonomous change in spending as it creates income for individuals and firms in the economy who will save some of the income and save the rest
This increase in spending generates rounds of income and induced consumption spending as one mans spending becomes another mans income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Reference to multiplier model

A

The initial autonomous change in AE is represented by a-b. This leads to extra income for individuals and firms b-ç some of which is spent or saved
At each stage, the extra spending is reduced due to the withdrawal or leakage of saving until a new equilibrium is established

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Multiplier formula

A

K= 1/MPS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Full five sector formula

A

K= 1/MPS + MPT + MPM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Multiplier definition

A

Is the amount by which real income or GDP changes after an initial change in expenditure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly