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The Multiplier Effect, MPC, and MPS Video Lecture | Economics Class 12 - Commerce
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FAQs on The Multiplier Effect, MPC, and MPS Video Lecture - Economics Class 12 - Commerce
| 1. What is the Multiplier Effect in economics? |  |
Ans. The Multiplier Effect refers to the phenomenon where an initial increase in spending leads to a larger increase in national income and economic growth. This is because the increase in spending creates a ripple effect as the recipients of that spending also spend money, leading to a chain reaction of increased consumption and production.
| 2. How is the Multiplier Effect calculated? | |
Ans. The Multiplier Effect is calculated by dividing the change in national income by the initial change in spending that caused it. For example, if an increase in government spending leads to a $100 billion increase in national income, and the initial increase in spending was $20 billion, the multiplier would be 5 (100/20).
| 3. What is the Marginal Propensity to Consume (MPC)? | |
Ans. The Marginal Propensity to Consume (MPC) is the proportion of an increase in income that a consumer spends on consumption. For example, if a consumer's income increases by $100 and they spend $80 of it, their MPC would be 0.8 ($80/$100).
| 4. What is the Marginal Propensity to Save (MPS)? | |
Ans. The Marginal Propensity to Save (MPS) is the proportion of an increase in income that a consumer saves rather than spends on consumption. Using the example from the previous question, if a consumer's income increases by $100 and they save $20 of it, their MPS would be 0.2 ($20/$100).
| 5. How do the MPC and MPS relate to the Multiplier Effect? | |
Ans. The MPC and MPS are key components in determining the size of the Multiplier Effect. A higher MPC (consumers spending more of their income) leads to a larger multiplier, as more of the initial increase in spending is circulated through the economy. Conversely, a higher MPS (consumers saving more of their income) leads to a smaller multiplier, as less of the initial increase in spending is circulated.
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Nov 23, 2024 Last updated |
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