Macroeconomics Study Guides

Essentials

Law of Demand: inverse relationship between price and quantity demanded

Law of Supply: direct relationship between price and quantity supplied

MPS/MPC

MPS is the slope of the savings schedule. It is equal to $\dfrac{\text { change in savings }}{\text { change in income }}$.

MPC is the slope of the consumption schedule. It is equal to $\dfrac{\text { change in consumption}}{\text { change in income}}$.

$\text{MPS + MPC = 1.}$

The Multiplier Effect

A change in aggregate expenditures causes a greater increase in GDP because the same money is used many times over. The multiplier determines how much larger the increase in GDP is. The multiplier's value can be found by the formula $\text { Multiplier }=\dfrac{1}{\mathrm{MPS}}=\dfrac{1}{1-\mathrm{MPC}}$.

This multiplier is called the simple multiplier.