The multiplier and the accelerator (OCR A-Level Economics): Flashcards

When a change in expenditure causes a greater final change in real GDP

$\frac{1}{MPW}$ or $\frac{1}{1-MPC}$

Proportion of change in income that leaks from circular flow

$MPM = \frac{\Delta \text{imports}}{\Delta \text{income}}$

$MRT = \frac{\Delta \text{taxed income}}{\Delta \text{income}}$

When MPW is low (low MPS, MRT, and MPM)

Increase in national income induces firms to increase investment

$APC = \frac{C}{Y}$ (Consumption / Total Income)

Proportion of additional income spent on consumption

$MPS = \frac{\Delta S}{\Delta Y}$ (Change in savings / Change in income)

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

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

Actual output below potential; underutilised resources & unemployment

Actual output exceeds potential; inflationary pressure

Initial spending increase causes 5× greater rise in national income