Expenditure Multiplier is the effect on income of a change in autonomous expenditures. if multiplier is 2 and autonomous spending changes, the income will change 2x as much. Multiplier = 1/1-MPE( marginal propensity to expend(slope of AE)). What makes the multiplier to go up or down; Increase in tax => multiplier to go down(there is less to spend) Cnada multiplier is less than US because we pay more taxes. Another wy to calculate MPE = MPcd(1-MTR)-MPM Definition: The ratio of the change in consumption that results from a change in income. Formula: MPC * ( 1 - MTR ) - MPM Description: MPE tell us how much of each extra dollar earned is spent on purchasing domestically produced goods.
Reference: John E. Sayre, Alan J. Morris. Principals of Economics 6th edition. McGraw-Hill Ryerson, 2009. Page 493.
A multiplier of 2 means that when autonomous spending changes by any amount the income will change by 2 times as much
Canada's multiplier is 1.32. this means that for every dollar increase in AE (government spending increase through fiscal policy) increases income by $1.32
Dr. Stephanie Powers, "Aggregate Demand", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)
is the effect on income of a change in autonomous expenditures. if multiplier is 2 and autonomous spending changes, the income will change 2x as much. Multiplier = 1/1-MPE( marginal propensity to expend(slope of AE)). What makes the multiplier to go up or down; Increase in tax => multiplier to go down(there is less to spend) Cnada multiplier is less than US because we pay more taxes.
Another wy to calculate MPE = MPcd(1-MTR)-MPM
Definition: The ratio of the change in consumption that results from a change in income.
Formula: MPC * ( 1 - MTR ) - MPM
Description: MPE tell us how much of each extra dollar earned is spent on purchasing domestically produced goods.
Reference:
John E. Sayre, Alan J. Morris. Principals of Economics 6th edition. McGraw-Hill Ryerson, 2009. Page 493.
A multiplier of 2 means that when autonomous spending changes by any amount the income will change by 2 times as much
Canada's multiplier is 1.32. this means that for every dollar increase in AE (government spending increase through fiscal policy) increases income by $1.32
Dr. Stephanie Powers, "Aggregate Demand", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)