Calculating the Spending Multiplier- Macroeconomics

Mr. Clifford introduces the concept of the spending multiplier, explaining how money spent in the economy multiplies as it is re-spent by others. He provides examples with different Marginal Propensity to Consume (MPC) values, showing how to calculate the multiplier. As MPC decreases, the multiplier effect diminishes, illustrating the relationship between spending and saving. The video concludes with insights on how changes in spending behavior impact the economy.

What is the primary concept behind the spending multiplier?

• It is the total amount of money spent by the government.

• It is the amount of money that is taxed by the government.

• It is the total amount of money saved in an economy.

• It is the idea that money spent in the economy is multiplied as it circulates.

If the Marginal Propensity to Consume is 0.9, what is the spending multiplier?

• 10

• 1

• 5

• 2

How does a decrease in the Marginal Propensity to Consume affect the spending multiplier?

• The multiplier becomes negative.

• The multiplier decreases.

• The multiplier remains the same.

• The multiplier increases.

What happens to the spending multiplier if the Marginal Propensity to Consume is zero?

• The multiplier is one.

• The multiplier is zero.

• The multiplier is ten.

• The multiplier is infinite.

Why does a high Marginal Propensity to Consume result in a larger spending multiplier?

• Because more money is saved.

• Because more money is taxed.

• Because less money is spent.

• Because more money is spent and re-spent in the economy.