MPS, AG, AD

Question 1

MPC

Answer 1

Marginal Propensity to Consume
eg. per dollar, households might spend 70c. therefore MPC would be 0.7

MPC + MPS = 1

Question 2

MPS

Answer 2

Marginal Propensity to Save
Eg. After tax and expenditure, 10 cents per dollar saved. therefore = 0.1

Question 3

Multiplier effect formula

Answer 3

1/1-MPC

Question 4

MPC calculation

Answer 4

△C/△Y

Question 5

National income calculation

Answer 5

△Y = k * △I

Question 6

What is k, and how do we calculate it?

Answer 6

k = multiplier
k = 1/1-MPC

Question 7

AD

Answer 7

Total demand for goods and services within the economy

Question 8

How does AD influence economic growth

Answer 8

Increase in AD, curve shifts right. Real output and inflation both rise (firms respond to high demand, increasing output)
- though this is to a point, before spare capacity reaches its limit
This typically leads to economic growth