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Flashcards in Unit 30 Deck (6)
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1
Q

Define marginal propensity to import (MPM).

How is it calculated?

A

The marginal propensity to import is the increase in imports divided by the increase in income that caused them (i.e. Change in imports/Change in income).

2
Q

Define marginal propensity to save (MPS).

How is it calculated?

A

The marginal propensity to save is the increase in saving divided by the increase in income that caused it (i.e. Change in savings/Change in income).

3
Q

Define marginal propensity to tax (MPT).

How is it calculated?

A

The marginal propensity to tax is the increase in tax revenues divided by the increase in income that caused them (i.e. Change in tax/change in income).

4
Q

Define marginal propensity to withdraw (MPW).

How is it calculated?

A

Marginal propensity to withdraw is the increase in withdrawals from the circular flow (S+T+M) divided by the increase in income that caused them (i.e. Change in withdrawals/ Change in income); this is the same as the sum of the MPS, MPT and MPM.

5
Q

What is the multiplier?

How is it calculated? (3)

A
The multiplier is the figure used to multiply a change in an injection into the circular flow, such as investment, to find the final change in income. It is the ratio of the final change in income to the initial change in injection.
It can be calculated as:
1) 1/(1 - MPC) 
2) 1/ (MPS + MPT + MPM)
3) 1/MPW
6
Q

What is the multiplier effect/process?

A

This is the process by which an increase in an injection will lead to a greater increase in income (assuming that the injection is not determined by income).