--%>
Assignment Help - homework help

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?

E

Expert

Verified

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.

   Related Questions in Macroeconomics

  • Q : Equal Marginal advantage law Assume

    Assume that you receive $18 worth of “jollies” (that is, satisfaction, utility or pleasure) from the very first hole of golf played on a particular day, and that your extra jollies from succeeding holes drops $1 for each and every hole played. You should p

    		•
  • Q : Components of aggregate demand What are

    What are the components of aggregate demand (AD)? Answer: The components of AD are as follows:AD = C + I + G + (X - M) By Simplifying AD = C + I, Here C refers to Household consumption demand and I refer

    		•
  • Q : Economics I help with part 2 and the 4

    I help with part 2 and the 4 part question.

    		•
  • Q : How central bank reduce the

    Describe any two measures by which a Central Bank can attempt to decrease the gap. Answer: Central bank can decrease this gap by adopting two measures illustrated b

    		•
  • Q : GDP In calculating the GDP national

    In calculating the GDP national income accountants:

    		•
  • Q : Methods that FED can use to make money

    What are the four methods that FED can use to make money? What are the most powerful one and what technique the FED to create a gradual easing of the money supply either created or destroyed most seldom uses?

    		•
  • Q : Determinants of transaction demand.

    With the help of graph discuss the determinants of transaction demand.

    		•
  • Q : Physical quality of life index DISCUSS

    DISCUSS the experience of high GNP countries and low GNP with regard to PQLI.

    		•
  • Q : Founder of utilitarianism The founder

    The founder of utilitarianism be: (1) Adam Smith. (2) John Stuart Mill. (3) Jeremy Bentham. (4) Feodor Dostoyevsky. (5) Thorstein Veblen. (6) Alfred Marshall. Can someone help me in getting through this problem.

    		•
  • Q : Purchasing and consumption of

    The usual household maximizes the utility by spending all its money to purchase and consume a combination of goods which yields: (1) Fundamental physiological requirements and customary wants. (2) Maximum status and the social prestige. (3) Complete satisfaction of al

    		•