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Q: The multiplier ( Answered 5 out of 5 stars,   0 Comments )
Question  
Subject: The multiplier
Category: Business and Money > Economics
Asked by: skeeter1-ga
List Price: $2.00
Posted: 08 May 2003 09:41 PDT
Expires: 07 Jun 2003 09:41 PDT
Question ID: 201173
The multiplier can be calculated by dividing
A. The initial change in spending the change in real GP
b. the change in real GP by the initial change in spending
c. One by one minus the marginal propensity to save
d. one by one minus the marginal propensity to invest
which is the correct answer?
Answer  
Subject: Re: The multiplier
Answered By: juggler-ga on 08 May 2003 10:07 PDT
Rated:5 out of 5 stars
 
Hello.

The correct answer is "b."


"The value of the multiplier is equivalent to the change in real GDP
divided by the change in desired spending which induces it.
Mathematically the multiplier is the reciprocal of the marginal
propensity to save or, what is by definition the same thing, one minus
the marginal propensity to consume."
source: "THE KEYNESIAN REVOLUTION," hosted by utoronta.ca
http://www.chass.utoronto.ca/~reak/eco100/100_14.htm

Note that "c" is on the right track with respect to the relationship
between the multiplier and marginal propensity to save, but it
contains a significant misstatement.  The  multplier is actually equal
to  1/MPS rather than 1/1-MPS.


search strategy: multiplier "change in real GDP", spending 

I hope this helps.
skeeter1-ga rated this answer:5 out of 5 stars

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