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In macroeconomics, a multiplier is a factor of proportionality that measures how much an endogenous variable changes in response to a change in some exogenous variable. For example, suppose variable x changes by k units, which causes another variable y to change by M × k units.
Major topics include measurement of economic performance, national income and price determination, fiscal and monetary policy, and international economics and growth. AP Macroeconomics is frequently taught in conjunction with (and, in some cases, in the same year as) AP Microeconomics as part of a comprehensive AP Economics curriculum, although ...
Also called resource cost advantage. The ability of a party (whether an individual, firm, or country) to produce a greater quantity of a good, product, or service than competitors using the same amount of resources. absorption The total demand for all final marketed goods and services by all economic agents resident in an economy, regardless of the origin of the goods and services themselves ...
The simplistic multiplier that is the reciprocal of the marginal propensity to save is a special case used for illustrative purposes only. The multiplier applies to any change in autonomous expenditure, in other words, an externally induced change in consumption, investment, government expenditure or net exports.
This equation is a rearrangement of the definition of velocity: :=. As such, without the introduction of any assumptions, it is a tautology . The quantity theory of money adds assumptions about the money supply, the price level, and the effect of interest rates on velocity to create a theory about the causes of inflation and the effects of ...
However, the size of this multiplier effect is likely to be diminished by two considerations: first, an upward push that the new spending gives to interest rates, which diminishes spending on goods such as physical capital and consumer durables; and second, an upward push that the spending gives to the general price level, which diminishes the ...
This example shows us how the multiplier is lessened by the existence of an automatic stabilizer and thus helping to lessen the fluctuations in real GDP as a result of changes in expenditure. Not only does this example work with changes in T, it would also work by changing the MPI while holding MPC and T constant as well.
The above analysis of one target variable and one policy tool can readily be extended to multiple targets and tools. [2] In this case a key result is that, unlike in the absence of multiplier uncertainty, it is not superfluous to have more policy tools than targets: with multiplier uncertainty, the more tools are available the lower expected loss can be driven.