Economics SL
4
Chapters
96
Notes
Unit 1 - Intro to Econ & Core Concepts
Unit 2 - Microeconomics
Unit 3 - Macroeconomics
Unit 4 - The Global Economy
Economics SL
Unit 3 - Macroeconomics
Unlocking The Power Of The Keynesian Multiplier
654 words
4 mins read
Last edited on 5th Nov 2024
Table of content
Introduction to the multiplier
- Who Invented It? JM Keynes and RF Kahn.
- What Is It? A concept that shows how a change in government spending leads to a bigger change in national income.
- Formula: ΔY = k * ΔG, where ΔY is the change in national income, ΔG is the change in government spending, and k is the multiplier.
Understanding the multiplier effect
- Real-World Example: Imagine the government hires people to dig holes and bury bottles for $100 million. This money doesn't stop there.
- Round 1: Workers spend their income on milk.
- Round 2: Milk producers spend on haircuts.
- Round 3: The process continues, boosting the economy.
- Important Note: Income and production are the same.
Factors influencing the multiplier
- Marginal Propensity to Consume (MPC): If you spend $100 on a haircut and the hairdresser spends $80 on cheese, the MPC is 0.8.
- Withdrawals (leakages): These are parts of the income that are saved, taxed, or spent on imports.
- Marginal Propensity to Withdraw (MPW): The sum of savings (MPS), taxes (MPT), and import spending (MPM).
- Real-World Examples:
- 2020 U.S. stimulus response to Covid-19 had a multiplier of 2.
- 2009 Obama Stimulus Plan had a multiplier of 1.6.
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Economics SL
Unit 3 - Macroeconomics
Unlocking The Power Of The Keynesian Multiplier
654 words
4 mins read
Last edited on 5th Nov 2024
Table of content
Introduction to the multiplier
- Who Invented It? JM Keynes and RF Kahn.
- What Is It? A concept that shows how a change in government spending leads to a bigger change in national income.
- Formula: ΔY = k * ΔG, where ΔY is the change in national income, ΔG is the change in government spending, and k is the multiplier.
Understanding the multiplier effect
- Real-World Example: Imagine the government hires people to dig holes and bury bottles for $100 million. This money doesn't stop there.
- Round 1: Workers spend their income on milk.
- Round 2: Milk producers spend on haircuts.
- Round 3: The process continues, boosting the economy.
- Important Note: Income and production are the same.
Factors influencing the multiplier
- Marginal Propensity to Consume (MPC): If you spend $100 on a haircut and the hairdresser spends $80 on cheese, the MPC is 0.8.
- Withdrawals (leakages): These are parts of the income that are saved, taxed, or spent on imports.
- Marginal Propensity to Withdraw (MPW): The sum of savings (MPS), taxes (MPT), and import spending (MPM).
- Real-World Examples:
- 2020 U.S. stimulus response to Covid-19 had a multiplier of 2.
- 2009 Obama Stimulus Plan had a multiplier of 1.6.
Unlock the Full Content!
Dive deeper and gain exclusive access to premium files of Economics SL. Subscribe now and get closer to that 45 🌟