2.4.4

Question 1

The multiplier ratio

Answer 1

The ratio of the rise in national income to the initial rise in AD

Question 2

The multiplier process

Answer 2

The multiplier effect occurs when there is new demand in an economy
This leads to an injection of more income into the circular flow of income

Question 3

Effects of marginal propensities on the multiplier

Answer 3

• marginal propensity to consume
• marginal propensity to save
• marginal propensity to tax
• marginal propensity to import

Question 4

Calculating the multiplier

Answer 4

1/(1-MPC)
1/MPW

Question 5

If AS is inelastic

Answer 5

The multiplier effect is likely to be smaller than its potential

Question 6

Reverse multiplier

Answer 6

Means that a withdrawal of income from the circular flow of income could lead to an even larger decrease in income for the economy
Could decrease economic growth decline in economy