4.3.3 - The Multiplier Mechanism
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Practice Questions
Test your understanding with targeted questions
What is the multiplier effect?
💡 Hint: Think about the initial spending and its broader economic implications.
Define Marginal Propensity to Consume (MPC).
💡 Hint: It's a percentage of what's spent from extra income.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is the primary effect of the multiplier mechanism in an economy?
💡 Hint: Consider what happens after the initial spending.
True or False: The Paradox of Thrift suggests that saving more always leads to more overall savings.
💡 Hint: Think about the economic implications when everyone chooses to save more.
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Challenge Problems
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Analyze a situation where government introduces a tax cut resulting in an initial increment in spending of 50 units. How does this impact income with an MPC of 0.6? Calculate the total effect.
💡 Hint: Break down the multiplier calculation.
Explore the implications of a decrease in consumer confidence during a recession. How would this lead to a decrease in income despite a prior high MPC?
💡 Hint: Consider why confidence and spending are crucial in economic cycles.
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