The Multiplier Powerpoint produced by Rachel Farrell (PDST) & Aoife Healion (SHS, Tullamore) Source of information: SEC Marking Schemes.

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The Multiplier Powerpoint produced by Rachel Farrell (PDST) & Aoife Healion (SHS, Tullamore) Source of information: SEC Marking Schemes

COLLATED EXAM QUESTIONS ORDINARY LEVELHIGHER LEVEL

John Maynard Keynes ( ) Keynes lived during an era of great economic change and upheaval – the post-war changes in the 1920’s and the depression of the 1930’s, when there was a loss of faith in classical economic doctrine. A new approach was sought by many governments and economists. Keynes provided this alternative which has resulted in the modern mixed economy such as exists in Ireland and the UK today.

New Economic Concepts 1. The Multiplier He developed new tools to explain his theories including the multiplier. Any initial increase in spending will cause a much greater increase in GNP due to the fact that one person’s expenditure is another person’s income. He developed concepts such as: MPC, MPM, etc.

2. Output is demand determined. The size of national income depends on expenditure i.e. Y = C + I + G + X − M

Relationship National Income Increase Injection into the CFI The Multiplier Keynes

The Multiplier 2006 Q 4 (b) (i) Shows the precise relationship between an initial injection into the circular flow of income and the eventual total increase in national income. Eg. An in injection of 3 million may increase the NI by 6 million (multiplier = 2)

Formula 1 MPS + MPM + MPT or (MPC-MPM-MPT) Note: A closed economy will have no imports

MPC Marginal Propensity to consume. This is the portion of each additional unit of income which is spent. MPC = change in consumption change in income

MPM Marginal Propensity to Import. This is the proportion of each additional unit of income which is spent on imports. MPM = change in imports change in income

MPS Marginal Propensity to Save. This is the proportion of each additional unit of income which is saved. MPC = change in savings change in income

MPT Marginal Propensity to Tax. This is the proportion of each additional unit of income which is taxed. MPC = change in tax change in income

2008 OL SQ 9 A

2011 HL Q7 (b)

Remember!

2011 HL Q7 (b)

2010 HL SQ 6

2006 HL Q 4 (b) Remember!

2005 HL Q 6 (b) MPS = 1 – MPC = 0.1

2002 HL SQ 8 4, 050 – 3,750 4,600 – 4,200 Change in C Change in Y

2002 HL SQ 8