Page 8 - MINMAC E-NOTE-converted

GOVERNMENT SPENDING MULTIPLIER: RATIO AN INCREMENT IN NATIONAL

INCOME TO AN INITIAL INCREMENT IN GOVERNMENT SPENDING
TAX MULTIPLIER: RATIO OF A DECREASE IN NATIONAL INCOME TO AN INITIAL
INCREASE IN TAX

BALANCED BUDGET MULTIPLIER: EQUAL CHANGE IN GOVERNMENT SPENDING

AND TAXES
INFLATIONARY GAP: NATIONAL INCOME EXCEEDS THE FULL EMPLOYMENT
LEVEL

DEFLATIONARY GAP: NATIONAL INCOME BELOW THE FULL EMPLOYMENT LEVEL

EQUATION FUNCTION/ FORMULAE
CONSUMPTION

C = a + bYd
a - AUTONOMOUS CONSUMPTION

b - MARGINAL PROPENSITY TO CONSUME
Yd – DISPOSABLE INCOME

SAVING
S = -a + (1-b) Y

-a - AUTONOMOUS SAVING
b - MARGINAL PROSPENSITY TO SAVE

(1-b) = 1 – MPC = MPS
INVESTMENT MULTIPLIER

1 / 1 – MPC = ∆ Y / ∆ I
GOV SPENDING MULTIPLIER

1 / 1 – MPC = ∆ Y / ∆ G
TAX MULTIPLIER

-MPC / 1 – MPC = ∆ Y / ∆ T
BALANCED BUDGET MULTIPLIER

∆ Y = Kg + Kt