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MR03 Keynesian Multiplier - Coggle Diagram
MR03 Keynesian Multiplier
Aggregate Expenditure
Sum of expenditures on all goods & services at a given price level
AE = AD = GDP = Income (Y)
AE -= C + I + G + (X - M)
Multiplier Effect
Real GDP increases by MORE than the initial increase in autonomous expenditure
Consumption Function
C = a + MPC (Y)
AE Model
I + G + (X - M)
Autonomous
= A
C
Non-autonomous
AE = A + MPC (Y)
Circular Flow Model
Injections
I, G, X
Leakages
Savings, Taxes, Imports
Equilibrium
Injections = Leakages
Marginal Propensity to Consume (MPC)
Additional amount of consumption from a $1 increase in income
Marginal Propensity to Save
MPS = 1 - MPC
Marginal Propensity to Import
MPM
Additional amount of import for a $1 increase in income
Keynesian Multiplier
Open economy
K = 1/(MPS + MPM) = 1/[(1- MPC) + MPM]
Closed economy
K = 1/MPS =1/(1-MPC)