How to calculate the spending multiplier?
Understand the Problem
The question is asking for the method to calculate the spending multiplier, which is an important concept in economics that measures the effect of an increase in spending on the overall economy.
Answer
1/MPS
The final answer is 1/MPS
Answer for screen readers
The final answer is 1/MPS
More Information
The spending multiplier is used to show how initial spending leads to more spending, and results in a greater overall increase in GDP.
Tips
A common mistake is confusing MPS with MPC (Marginal Propensity to Consume). Remember, MPS is used directly in the formula for the spending multiplier.
Sources
- Multiplier Effect, Spending Multiplier Overview, Purpose & Examples - study.com
- The Spending Multiplier in the Income-Expenditure Model - courses.lumenlearning.com
- Spending and Tax Multipliers - AP Macro Study Guide 2024 - Fiveable - library.fiveable.me
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