do all increases in AD result in the multiplier process? (1 Viewer)

[:: dreami ::]

god... this sounds stupid

is it possible that you inject $5000 and get $5000 out of it?

if there is, do you choose which way you want to inject the money?

 

[Sarah168]

a 5000 increase in whatever component of AD DOES NOT immediately transform into a 5000 increase in the multiplier

and i dont get the last part of what you're trying to say

 

[:: dreami ::]

put it this way, if i invest $5000 into an economy, will the effect always be a multiplied one? or is it possible that the effects are equal?

thanks hun!

 

[Sarah168]

after the mulitplier is calculated, u times it by the change in AD , which may be an increase in investment or whatever and that will determine the total increase in income.

assuming MPC = 0.2 and the increase in AD is $1000

then k = 1/1-MPC = 1/0.8 = 1.25

when u multiply it by the increase in AD it would be:

1.25 x 1000 = 1250 and this is the total increase in national income


So you can see that the increase is 250 NOT 1000...hmm I dont think I even know what I'm on about

 

[:: dreami ::]

no its orite babe

i think i understand now

thanks heaps

 

[ay_caramba]

hi
the only way that an injection of $5000 would result in a change of national income of $5000, would be if the MPS=1, u know how k=1/MPS, it would be k=1/1
meaning that all the money would be saved, and thus it wouldnt generate income to anyone else

i think thats it
see ya

 

[:: dreami ::]

omg i get it now...

thanks so much

 

[ay_caramba]

hehe u know who this is rite
u better
see ya