the multiplier

• What does the Keynesian Multiplier show?

  The extent to which each additional dollar injected into the economy will increase the value of aggregate demand.
• What is the marginal propensity to consume (MPC)?

  The proportion of additional income that is spent on domestic goods and services.
• How does the spending pattern affect the circular flow of money?

  60% remains in the circular flow while 40% leaves in each round of spending.
• How is the multiplier calculated using the marginal propensity to consume (MPC)?

  Multiplier = 1/mpc
• What is the formula for calculating the multiplier using the marginal propensity to withdraw (MPW)?

  Multiplier = 1/mpw
• What does the marginal propensity to withdraw (MPW) consist of?

  MPW = mps + mrt + mpm
• What does the marginal propensity to save (mps) represent?

  The proportion of additional income that is saved rather than spent.
• How do you calculate the multiplier if the marginal propensity to consume is 0.75?

  Multiplier => 1/(1-0.75) = 4
• What is the multiplier effect?

  • An initial increase in spending leads to a larger overall rise in economic activity.
  • It can result from consumption, investment, government spending, or net exports.
• How does the multiplier effect amplify spending in the circular flow of money?

  • It causes initial spending to circulate.
  • It increases overall economic activity through repeated re-spending.
• What is the marginal propensity to consume (MPC)?

  • The proportion of additional income spent on consumption.
  • Measures how much consumption increases with an increase in income.
• The sum of all marginal properties is equal to...

  1

  
  

  MPC + MPS + MPT + MPM = 1
• to calculate any marginal property the base is always change in income, but the numerator is...


  MPC = △ in consumption / △ income

  MPS = △ in savings / △ income

  MPT = △ in tax / △ income

  MPM = △ import spending / △ income