This document discusses key economic concepts including consumption, saving, the multiplier effect, investment demand, and how changes in government spending and taxes can impact GDP through the multiplier. It provides examples of how an initial $1,000 change in spending can multiply into $2,000 in total income due to subsequent rounds of spending. It also notes that the size of the multiplier depends on the marginal propensity to consume.
This document discusses the multiplier effect in economics. It defines key terms like disposable income, consumption, and savings. It explains that the marginal propensity to consume (MPC) measures how much of additional income is spent, while the marginal propensity to save (MPS) measures how much is saved. The multiplier effect occurs because initial spending, like from new investment, becomes income that is partially re-spent, creating more income and spending in a repeating cycle. The size of the multiplier depends on the MPC and shows how small changes in spending can amplify economic activity.
This document discusses key economic concepts including consumption, saving, the multiplier effect, investment demand, and how changes in government spending and taxes can impact GDP through the multiplier. It provides examples of how an initial $1,000 change in spending can multiply into $2,000 in total income due to subsequent rounds of spending. It also notes that the size of the multiplier depends on the marginal propensity to consume.
This document discusses the multiplier effect in economics. It defines key terms like disposable income, consumption, and savings. It explains that the marginal propensity to consume (MPC) measures how much of additional income is spent, while the marginal propensity to save (MPS) measures how much is saved. The multiplier effect occurs because initial spending, like from new investment, becomes income that is partially re-spent, creating more income and spending in a repeating cycle. The size of the multiplier depends on the MPC and shows how small changes in spending can amplify economic activity.