The Effect Of Savings And Consumption On The National...

Economy January 1 2014 [Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.] [Type the document subtitle] Table of Contents Answer 1 3 Answer 2 4 Answer 3 6 Answer 4 7 Answer 5 9 Answer 6 11 Answer 7 12 Answer 8 14 Answer 9 16 Bibliography 18 Answer 1 The multiplier is actually the method of measuring the effects of savings and consumption on the national income of an economy and it also shows the relationship between change in income and change in investment. The multiplier effect occurs when an input causes a bigger final increase in national income, for example, if the spending by the government increases by $550 billion, there would be an initial increase in aggregate demand of $550 billion. Every time there is an input of new demand into the circular flow of money there is most probably to be a multiplier effect. This is because an input of extra income leads to more spending, that creates more income, and so on. The multiplier effect refers to the rise in final income arising from any new input or spending by the government or any financial body. The size of the multiplier depends upon household’s marginal decision to spend, called the marginal propensity to consume (MPC), or to save, marginal propensity to save (MPS) . So the effect of increase in savings on the multiplierShow MoreRelatedHousehold Expenditure and Savings1090 Words   |  5 Pagesthe response of personal savings and expenditure to changes in the interest rates is a central to many issues in the economic policy. If personal savings decline as a result, the overall increase in the national savings would be less than the reduction in the budget deficit. 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