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Published byRudolf Harmon Modified over 9 years ago
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The Multiplier Powerpoint produced by Rachel Farrell (PDST) & Aoife Healion (SHS, Tullamore) Source of information: SEC Marking Schemes
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COLLATED EXAM QUESTIONS ORDINARY LEVELHIGHER LEVEL
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John Maynard Keynes (1883-1946) 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.
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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.
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2. Output is demand determined. The size of national income depends on expenditure i.e. Y = C + I + G + X − M
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Relationship National Income Increase Injection into the CFI The Multiplier Keynes
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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)
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Formula 1 MPS + MPM + MPT or 1 1 - (MPC-MPM-MPT) Note: A closed economy will have no imports
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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
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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
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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
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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
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2008 OL SQ 9 A
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2011 HL Q7 (b)
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Remember!
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2011 HL Q7 (b)
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2010 HL SQ 6
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2006 HL Q 4 (b) Remember!
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2005 HL Q 6 (b) MPS = 1 – MPC 1-0.9 = 0.1
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2002 HL SQ 8 4, 050 – 3,750 4,600 – 4,200 Change in C Change in Y
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2002 HL SQ 8
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