The concept of the marginal propensity to consume and use it to calculate the size of the multiplier
The marginal propensity to consume (MPC) measures the fraction of each extra pound of income that households spend. You use MPC to calculate the multiplier — the number that shows how much national income grows from an initial injection of spending.
Formula
Multiplier = 1 ÷ (1 − MPC)
Real World
If the UK government spends £10 billion on the HS2 railway and the MPC is 0.75, the multiplier is 4 — meaning the total boost to national income could reach £40 billion through successive rounds of spending.
Exam Focus
In calculation questions, show all working — MPC → (1 − MPC) → division — as method marks are awarded even if the final answer is wrong.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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