What is the multiplier effect? The multiplier is simply the ratio of the change in ( r G_ ) to the initial change in spending. Multiplying the initial change in spending by the multiplier gives you the amount of change in real GDP. The multiplier effect can work in a positive or a negative direction. An initial increase in spending will result in a (smaller, larger) increase in real GDP, and an initial decrease in spending will result in a larger (increase, decrease ) in real GDP. The multiplier magnifies the fluctuations in economic activity initiated by changes in investment spending, net exports, government spending, or consumption spending.
What is the multiplier effect? The multiplier is simply the ratio of the change in ( r G_ ) to the initial change in spending. Multiplying the initial change in spending by the multiplier gives you the amount of change in real GDP. The multiplier effect can work in a positive or a negative direction. An initial increase in spending will result in a (smaller, larger) increase in real GDP, and an initial decrease in spending will result in a larger (increase, decrease ) in real GDP. The multiplier magnifies the fluctuations in economic activity initiated by changes in investment spending, net exports, government spending, or consumption spending.
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section9.A: The Simple Algebra Of Income Determination And The Multiplier
Problem 4TY
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Transcribed Image Text:What is the multiplier effect?
The multiplier is simply the ratio of the change in (r
spending. Multiplying the initial change in spending by the multiplier gives you the amount of
change in real GDP.
G
) to the initial change in
The multiplier effect can work in a positive or a negative direction. An initial increase in spending will
result in a (smaller, larger) increase in real GDP, and an initial decrease in spending will result in
a larger (increase, decrease ) in real GDP. The multiplier magnifies the fluctuations in economic
activity initiated by changes in investment spending, net exports, government spending, or
consumption spending.
The multiplier is related to the marginal propensities. The MPC is (directly, inversely ) related to the size
of the multiplier. The MPS is (directly, inversely ) related to the size of the multiplier.
What will multiplier and MPS be when the MPC is .9, and 0.5?
MPC
MPS
Multiplier
.9
.5
How much of a change in GDP will result if firms increase their level of investment by $8 billion and the
MPC is .75?
A change in GDP will be
computed.)
(show how you
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