Help on multiplier process (1 Viewer)

[mz_purfect]

can anyone please explain 2 me de multiplier process in Eco Issues and its significance 2 de whole topic. My teacher has explained this stuff 2 me but she went pretty fast n xpects us 2 no it all b4hand, which is pretty absurd .

"Much that passes as idealism is disguised hatred or disguised love of power."

 

[Sarah168]

The multiplier is the number of times an increase in national income exceeds the increase in aggregate demand that caused it.

Multiplier (k) = 1/MPS or 1/1 MPC

This is because of the equation MPC + MPS = 1

The total increase = K X increase in the national income.

i assume u mean its significance to the whole topic as in economic growth. it determines rises in national income or Y and thus an increase in income results in economic growth.

Savings and investment are not always equal and thus the economy is not in equilibrium meaning that when I is greater than S, there is increased economic growth and activty and vice versa.

The process by which this adjustment takes place is measured in the change in national income.

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