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Questions and Answers
What does the multiplier concept explain?
What does the multiplier concept explain?
- How changes in government policies affect economic cycles
- How changes in consumer demand influence businesses to invest
- How a small change in spending can have a larger impact on the economy
- The proportional increase or decrease in final income resulting from a change in spending or investing (correct)
What does the accelerator concept explain?
What does the accelerator concept explain?
- How changes in consumer demand influence businesses to invest (correct)
- How changes in government policies affect economic cycles
- The proportional increase or decrease in final income resulting from a change in spending or investing
- How a small change in spending can have a larger impact on the economy
Why is the multiplier concept important in macroeconomics?
Why is the multiplier concept important in macroeconomics?
- It guides government policies on consumer spending
- It explains how changes in consumer demand influence businesses to invest
- It shows how a small change in spending can have a larger impact on the economy (correct)
- It measures the fluctuation in economic activities
What is the formula for the multiplier?
What is the formula for the multiplier?
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Study Notes
Multiplier Concept
- Explains how an initial change in spending can cause a larger change in national income.
- This happens because an initial change in spending leads to further increases in spending throughout the economy.
Accelerator Concept
- Explains the relationship between investment and changes in national income.
- It suggests that investment spending accelerates when national income grows rapidly.
- When national income falls, investment spending decelerates.
Importance of the Multiplier Concept
- Helps economists predict the impact of changes in government spending or taxes on national income.
- It is crucial for understanding and managing economic fluctuations.
Multiplier Formula
- K = 1 / (1 - MPC)
- Where:
- K is the multiplier
- MPC is the marginal propensity to consume, which is the proportion of additional income that is spent.
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Description
Test your understanding of multiplier and accelerator concepts in macroeconomics. Learn how these two concepts measure the impact of changes in economic variables and influence economic activities.
