AP Macroeconomics / Unit 3: National Income and Price Determination
3.2 Multipliers
Notes
- Spending multiplier $\displaystyle =\frac{1}{MPS}=\frac{1}{1-MPC}$.
- Tax multiplier $\displaystyle =-\frac{MPC}{MPS}$.
- Balanced budget multiplier = 1.
Practice
MPC = 0.8. The spending multiplier:
$\displaystyle \frac{1}{0.2}$.
With MPC = 0.8, a 10 billion increase in government spending can raise GDP by up to:
$10\times5$.
With MPC = 0.8, the tax multiplier is:
$\displaystyle -\frac{0.8}{0.2}$.
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