--%>
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 : Resolving disequilibrium between the

    Assume that you consume bananas and apples, and the marginal utility of the last apple consumed is 6 times the marginal utility of last banana consumed. Though, the price of apples is only 3 times the price of bananas. This disequilibrium among the two goods can be re

    		•
  • Q : One party to a transaction deceives

    If one party to a transaction deceives another party prior to a deal be reached, this is termed as: (i) Bad luck. (ii) Adverse selection. (iii) Moral hazard. (iv) Polyandry. (v) Rational ignorance. Please someone suggest me the rig

    		•
  • Q : Role of price in market economies What

    What is the role of price in market economies?

    		•
  • Q : Supply factors in economic growth

    Briefly explain the four supply factors in economic growth?

    		•
  • Q : Principles of macroeconomics What are

    What are the “powers of the Federal Reserve

    		•
  • Q : What are the strength and weakness What

    What are the strength and weakness of using per capital national income? give explained answer for query

    		•
  • Q : Define law of supply Law of supply : It

    Law of supply: It is the claim which, other things equivalent, the quantity supplied of a good increases whenever the price of the good increases.

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

    I help with part 2 and the 4 part question.

    		•
  • Q : Positional Goods problem Can someone

    Can someone help me in finding out the right answer from the given options. In accord with the theories of Thorstein Veblen, the positional goods from which the owner or user of the good derives the jollies mainly since of the power, class and status signaled by the p

    		•
  • Q : Problem on diminishing marginal utility

    An illustration of how marginal utility diminishes takes place when: (1) Derek finds it tough to laugh politely when he hears a “new” joke for the fourth time now. (2) Amy Sue chooses she would instead have 150 hogs than 151 on her pig far

    		•