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    The MPC and The Multiplier

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    The multiplier effect describes how an initial change in spending circulates through the economy as it is spent and respent. The multiplier is directly related to the marginal propensity to consume (MPC), meaning that a higher MPC leads to a higher multiplier. If the MPC is 30%, the multiplier is 1.4, but if the MPC is 70%, the multiplier increases to 3.33, demonstrating that a greater portion of each dollar being spent and respent results in more total impact on aggregate demand.

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    The MPC and The Multiplier

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    Prueba3
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    The multiplier effect describes how an initial change in spending circulates through the economy as it is spent and respent. The multiplier is directly related to the marginal propensity to consume (MPC), meaning that a higher MPC leads to a higher multiplier. If the MPC is 30%, the multiplier is 1.4, but if the MPC is 70%, the multiplier increases to 3.33, demonstrating that a greater portion of each dollar being spent and respent results in more total impact on aggregate demand.

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    The multiplier effect describes how an initial change in spending circulates through the economy as it is spent and respent. The multiplier is directly related to the marginal propensity to consume (MPC), meaning that a higher MPC leads to a higher multiplier. If the MPC is 30%, the multiplier is 1.4, but if the MPC is 70%, the multiplier increases to 3.33, demonstrating that a greater portion of each dollar being spent and respent results in more total impact on aggregate demand.

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    11 views1 page

    The MPC and The Multiplier

    Uploaded by

    Prueba3
    The multiplier effect describes how an initial change in spending circulates through the economy as it is spent and respent. The multiplier is directly related to the marginal propensity to consume (MPC), meaning that a higher MPC leads to a higher multiplier. If the MPC is 30%, the multiplier is 1.4, but if the MPC is 70%, the multiplier increases to 3.33, demonstrating that a greater portion of each dollar being spent and respent results in more total impact on aggregate demand.

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    The MPC and the multiplier

    The multiplier is directly attach to the MPC. If MPC increase, the multiplier will increased
    as well.
    MPC is the percentage of how much people spend. For example; Carlos has 20 dollars and
    he would spend 30 percent(MPC= .30) of those 20, that money would be receive by other
    person and he/she would spend some other percent of that 30 percent that he/she got and it
    will go from hand to hand but people will spend different amounts. That is what is known
    as the multiplier effect.
    Another example; if the MPC is 30% the multiplier will be 1/1-0.3=1.4 but if the MPC is
    70% the multiplier will be 1/1-0.7=3.33 so if the MPC increase the multiplier increased as
    well.

    Cited: Arnold, Roger A. Macroeconomics. 12th ed., Cengage Learning, 2016.

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