Why value of multiplier is low
In poor countries people spend a big percentage of their income so that APC and MPC are high. Yet, the value of multiplier is low. Explain why?
Expert
Working of the multiplier method is based on one basic supposition: that there exists, surplus capacity in the economy therefore that whenever consumption expenses rises (implying raise in demand) there is an equivalent increase in production (implying rise in income). However poor countries lack in production capacity.
Accordingly, if demand increases (in terms of rise in consumption expenses), there is increasing pressure of demand on existing output (that is, implying inflation or rise in prices) instead of increase in output or income.
If the price of K declines, the demand curve for the complementary project J will:
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What relationship does the MPC bear to the size of the multiplier
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When equilibrium moves from point a to point b in the figure shown below, the only market experiencing a reduction in quantity supplied is illustrated in: (1) Panel A. (2) Panel B. (3) Panel C. (4) Panel D. Discover Q & A Leading Solution Library Avail More Than 1453883 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads No hassle, Instant Access Start Discovering 18,76,764 1930325 Asked 3,689 Active Tutors 1453883 Questions Answered Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!! Submit Assignment
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