The Multiplier Effect, MPC, and MPS (AP Macroeconomics)

The video introduces the concept of the spending multiplier, using a scenario where a person finds $100 to explain the choices of spending or saving. It delves into the marginal propensity to consume and save, illustrating how these concepts affect the economy. The spending multiplier is explained as a process where money spent in the economy multiplies through various transactions, using a government spending example to show how initial spending can lead to a larger economic impact.

If you found a $100 bill, how would you decide how much to spend and how much to save?

Explain the concept of marginal propensity to consume and marginal propensity to save.

What is the spending multiplier and how does it work in the economy?

How does government spending affect the overall economy according to the spending multiplier?

Calculate the spending multiplier if the marginal propensity to save is 0.2.