Multipliers - AP Macroeconomics

$\frac{-MPC}{1 - MPC}$. Negative because tax increases reduce disposable income.

Marginal Propensity to Consume. The fraction of additional income that consumers spend.

$\frac{1}{1 - MPC}$. Based on how much of each dollar is spent vs. saved.

Tax rate. Spending multiplier depends only on MPC, not tax rates.

Directly proportional. Higher MPC makes the tax multiplier more negative (larger magnitude).

Value of MPC. Higher MPC creates larger multipliers for all types.

Increases consumption. Higher MPC means people consume more of each dollar earned.

Equal change in GDP. Equal increases in spending and taxes have a net multiplier of 1.

MPS = 1 - MPC. Income must be either consumed or saved, so they sum to 1.

Tax cut × Tax multiplier. Tax cuts stimulate GDP through the negative tax multiplier.

$\frac{1}{1 - MPC}$. Net exports work the same way as other spending injections.

GDP increases by $2000. Using export multiplier: $200 × 10 = $2000.

Increases economic activity. Tax cuts boost disposable income and consumer spending.

Assess impact of fiscal changes. Multipliers help predict how policy changes affect GDP.

Spending multiplier. Spending has no negative sign, making it larger in absolute value.

$\frac{1}{MPS}$. Since MPS = 1 - MPC, this is equivalent to the standard formula.

GDP decreases. Exports are a component of aggregate demand.

Reduces economic activity. More savings means less consumption and spending.

Increases consumption. Higher MPC means people consume more of each dollar earned.

Increases GDP. Investment is a component of aggregate demand.

Higher confidence strengthens multiplier. Confidence affects how much people spend from additional income.

Reduces disposable income. Higher taxes leave consumers with less money to spend.

Magnifies fiscal policy effects on GDP. Multipliers amplify the impact of government spending and taxes.

GDP increases by $400. Using spending multiplier: $100 × 4 = $400.

Influences GDP through spending and taxation. Government uses multipliers to predict policy effectiveness.

Weakened multipliers. High savings reduces MPC, weakening all multiplier effects.

GDP increases by the amount of spending increase. The balanced budget multiplier always equals 1.

GDP increases. Higher foreign demand increases exports and domestic GDP.

Larger spending multiplier. Lower MPS means higher MPC and greater multiplier effect.