This article goes over the economics of the money multiplier, and goes over an example:
Imagine an economy that has no imports or taxes. An increase in autonomous expenditure of 2 billion increases equilibrium expenditure by 8 billion.
a) calculate the multiplier
b) calculate the marginal propensity to consume
c) what would happen to the multiplier if an income tax is introduced
An increase in autonomous expenditure means that there is an increase in the minimum amount of spending done (for example, sustenance only consumption which is necessary regardless of income). This point is represented on the Keynesian Cross graph (the 45 degree line) by its positive intersection on the Y axis.
Imagine an economy that has no imports or taxes. An increase in autonomous expenditure of 2 billion increases equilibrium expenditure by 8 billion.
a) calculate the multiplier
b) calculate the marginal propensity to consume
c) what would happen to the multiplier if an income tax is introduced
An increase in autonomous expenditure means that there is an increase in the minimum amount of spending done (for example, sustenance only consumption which is necessary regardless of income). This point is represented on the Keynesian Cross graph (the 45 degree line) by its positive intersection on the Y axis.
