multiplier effect

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  • Created by: ishah
  • Created on: 11-05-13 12:02
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  • multiplier effect
    • Gov spending ^ -> consumption ^ -> national income ^
      • chnage AD - change aggregate output
        • GDP grows
    • size of multiplier
      • depends on withdrawals
      • MPC
        • multiplier =1/MPC
          • change in consumption resulting from disposable income ^
            • amount spent divided by new income
    • AD increases + AS elastic
      • national income ^ greater than AD ^
    • doesn't go on forev's
      • income ^ - higher tax
      • AS becomes more inelastic - prices ^ not output
    • MPS
      • consumption and income
      • MPC x real income + autonomous consumption

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