It is estimated that in the Irish economy:
MPS = 0.25, MPM = 0.3, MPT = 0.2 - Leaving Cert Economics - Question 6 - 2010
Question 6
It is estimated that in the Irish economy:
MPS = 0.25, MPM = 0.3, MPT = 0.2. Calculate the value of the Multiplier in the Irish economy. Explain the economic meaning... show full transcript
Worked Solution & Example Answer:It is estimated that in the Irish economy:
MPS = 0.25, MPM = 0.3, MPT = 0.2 - Leaving Cert Economics - Question 6 - 2010
Step 1
Calculate the Multiplier
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Answer
To find the Multiplier (k), we use the formula:
k=MPS+MPM+MPT1
Substituting the given values:
MPS = 0.25
MPM = 0.3
MPT = 0.2
k=0.25+0.3+0.21=0.751=1.33
Step 2
Explain the Economic Meaning of the Multiplier
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Answer
The Multiplier of 1.33 implies that for every unit of injection into the economy (e.g., government spending, investment), the national income will increase by 1.33 times. This reflects the interconnectedness of economic activities, where an increase in one sector can lead to further increases in spending and income throughout the economy.
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