Economics Multiplier Effect Explained

The MPS, MPT, and MPM are influenced by income, wealth, and expectations.

Singapore's lower MPS and MPM compared to the USA are due to a combination of factors, including a smaller population, a compulsory CPF savings scheme, and a lack of domestic resources, leading to a larger proportion of additional income being used for imports.

The first step in the multiplier process using the AD/AS model involves a rise in autonomous export earnings, causing an initial increase in income within the economic system.

<p>The knock-on effect of the multiplier process is that the initial rise in income leads to higher consumer spending, further increasing income through a series of rounds.</p> Signup and view all the answers

<p>For a $10 million increase in autonomous exports, assuming an MPC of 0.8, households will initially spend $8 million, leading to an increase in National Income of $8 million. This process continues, with each round spending a portion of their existing income.</p> Signup and view all the answers

<p>A rise in export expenditure shifts the AD curve to the right. The extent of the shift depends on the size of the multiplier, which is directly related to the MPC and inverse relationship to the MPW.</p> Signup and view all the answers

<p>The size of the multiplier is directly related to the MPC and inverse relationship with the MPW.</p> Signup and view all the answers

<p>Government spending also affects the multiplier, with an example showing that a government wanting to increase National Income by $100 million with an MPC of 0.6 would need to increase government spending by $40 million.</p> Signup and view all the answers

<p>The impact of a rise in national income is influenced by whether the increase is real or nominal. A real increase represents growth in the economy, while a nominal increase may be due to inflation.</p> Signup and view all the answers

The economic process where an initial change in spending leads to increased national income through successive rounds of spending.

Expenditures that occur without regard to current income levels, like government spending or exports.

The phenomenon where an increase in autonomous spending causes a larger final increase in national income.

The fraction of additional income that households spend on consumption.

The fraction of additional income that is not spent, but saved, taxed, or used for imports.

The multiplier (k) can be calculated as k = 1 / (1 - MPC) or k = 1 / MPW.

If MPC is 0.8, a $10 million increase leads to a $50 million total effect.

Real NY accounts for inflation while nominal NY does not.

The total demand for goods and services within an economy at a given overall price level and in a given time period.

A model showing the relationship between aggregate demand (AD) and aggregate supply (AS).

A graphical representation of aggregate expenditures (AE) against national income (Y).

An increase in exports shifts the AD curve to the right, indicating a rise in aggregate demand.

The ripple effect of increased spending leading to further income generation.

Individuals or entities that receive income through the multiplier process.

Portions of income that are not spent in the economy, such as savings, imports, and taxes.

A state where all resources in an economy are being used efficiently.

The level of income where aggregate demand equals aggregate supply.

The total effect on national income resulting from an increase in consumption via the multiplier process.

The total income earned by a nation's residents and businesses, including wages, profits, rents, and taxes.

The initial amount of spending that starts the multiplier process.

The ongoing cycle of spending and re-spending throughout the economy initiated by the initial injection.

Relating the amount of spending to the level of income increase.

An external factor that can affect aggregate demand, such as changes in foreign incomes influencing exports.

Changes in aggregate demand caused by factors like consumer confidence, government policy, or changes in foreign trade.

A situation where economic forces such as supply and demand are balanced.

The idea that economies go through cycles of growth and contraction influenced by various factors, including the multiplier.

A rise in aggregate demand due to factors such as increased spending on exports.

The evaluation of how effectively a change in spending creates further economic activity.

The condition in which an economy is stable with low inflation and low unemployment.