I am having some trouble understanding the multiplier effect. There are two main things I don't understand:
1) The effect is explained with an example in which there is a £100 million increase in investment. A firm receives the money from the investment. All of the money is then passed onto households. The households withdraw some of the money, in this case at a rate of 0.1, meaning £90 million flows back to firms. What I don't understand is why ALL the money firms receive must flow back to households, and why when calculating the multiplier, you only take into account the MPW of households. Surely firms save, import and pay taxes. Why are these withdrawals not included in the model?
2) I was taught beforehand that the MPC and the MPS must equal 1, as income is either spent or saved. Why is it then that the value of the multiplier is 1/1-MPC or 1/MPW, which suggests that the MPC and the MPW equal one. This makes more sense, but why was I taught it in terms of the MPS and MPC equalling 1 beforehand?
Thanks in advance for any help. I understand the concept in general but just a few details don't seem to make sense.
i am really struggling with these revision questions and was wondering if anyone could provide me with some help
A monopolists’s demand function is given by p +q = 100 Write down expressions for tr and mr in terms of q and sketch their graphs. Find the value of which gives a marginal revenue of zero and comment on the significance of this value. If the average cost function of a good is ac =15/q +2q+9 find an expression for TC What are the fixed costs in this case? Write down an expression for the marginal cost function. 3) If the supply equation is q = 7 + 0.1p + 0.004p2 find the price elasticity of supply if the current price is 80. is supply elastic or inelastic at this price and estimate the percentage change in supply if the price rises by five percent
If a government imposes a minimum wage policy for workers in factories that produce computes but not on ones that produce computers’ accessories. What would be the effect of such a policy on the wages and products’ prices in these two industries in both the short and the long run?
I didn't do econ at a-level so forgive me if this is basic stuff
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Hi is there anywhere I can find where they do questions by topic for economics and this is for edexcel
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