Changing Levels of Growth: The Multiplier Process (HSC SSCE Economics): Flashcards

John Maynard Keynes

Greater-than-proportional increase in national income from ↑ AD

Proportion of extra income spent on consumption

Proportion of extra income that is saved

MPC + MPS = 1

$k = \frac{1}{\text{MPS}}$

$k = \frac{1}{1 - \text{MPC}}$

Smaller multiplier (less spending generates less additional income)

Works both ways - amplifies decreases as well as increases

Initial spending generates much larger total economic activity