ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The factor 1/(1 − MPC) is called the multiplier. If a question tells you that the multiplier is 2.5, that means: Change in GDP = 2.5 × Change in AD.

Detailed explanation-2: -Explanation: When the tax multiplier-1.5, this means when the government increases taxes by $1, the GDP falls by $1.5. The negative sign is because of GDP falls when taxes are increased. So, when taxes are increased by $200, the reduction in GDP would be = $200 billion * 1.5 = $300 billion.

Detailed explanation-3: -In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it. The term multiplier is usually used in reference to the relationship between government spending and total national income.

Detailed explanation-4: -GDP = private consumption + gross private investment + government investment + government spending + (exports – imports). GDP is usually calculated by the national statistical agency of the country following the international standard.