What is the formula for the spending multiplier?
Understand the Problem
The question is asking for the formula that calculates the spending multiplier, which is a concept in economics. The spending multiplier tells us how much economic activity is generated from an initial change in spending.
Answer
1/MPS
The formula for the spending multiplier is 1/MPS, where MPS stands for the Marginal Propensity to Save.
Answer for screen readers
The formula for the spending multiplier is 1/MPS, where MPS stands for the Marginal Propensity to Save.
More Information
The spending multiplier helps estimate the overall impact on the economy from an initial change in spending. It highlights the ripple effect where an initial amount of spending leads to further spending and increases total economic output.
Tips
Common mistakes include confusing MPS (Marginal Propensity to Save) with MPC (Marginal Propensity to Consume). Ensure you correctly determine MPS when using the formula.
Sources
- What Is the Multiplier Effect? Formula and Example - Investopedia - investopedia.com
- Spending and Tax Multipliers - AP Macro Study Guide 2024 - Fiveable - library.fiveable.me
- The Spending Multiplier in the Income-Expenditure Model - courses.lumenlearning.com
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