These are Higher Level Extension Topics, and are listed in the following way on the 2005 IB syllabus:

• Multiplier
[including calculation of multiplier]
• Accelerator
• “Crowding out”

Here are some video resources and questions to help you understand these concepts.

Watch the following video and then answer the questions underneath.

MPC and the Multiplier by FitzEcon

1) Define the MPC?
2) What is the formula for the multiplier?
3) Define the MPS.
4) Record, in writing / notes, the example given by the speaker.
5) Extension – Check your text book’s entry and enhance your explanation of the multiplier, with particular attention to the concept of ’rounds’

Fiscal policy and the multiplier effect by pajholden

Click here for video

6) Why, in the example given, does the government want to boost Aggregate Demand?
7) What would be the trade-off of this economic goal?
8] Demonstrate the above on a sketch diagram.
9) What two fiscal policy options does the government have?
10) What does the theory of the multiplier effect state? (add to previous explanation)
11) Briefly summarise the example given of how an initial increase in spending on healthcare by the government leads to further increases in AD.
12) What are the difficulties mentionned which are associated with the multiplier effect?
13) Extension – think about it – why might cutting tax be different in terms of the impact on the multiplier compared to increasing government spending by the same amount of money?

MEC and Accelerator investment theories by pajholden

Click her for video

NOTE You only need to focus on the Accelerator Theory (4 mins 16 secs onwards) for HL IB Economics (although it is harmless to view the MEC theory section)

14) What are the two types of investment mentionned – explain the difference.
15) What is the Accelerator Theory in basic terms.
16) Enhance your notes by checking your text book and following links:
http://tutor2u.net/economics/revision-notes/as-macro-multiplier-accelerator.html
Bottom of this page: http://econ.la.psu.edu/~dshapiro/l18nov04.htm
http://cafehayek.com/2010/02/crowding-out.html

Crowding Out

Research and summarise information to include the following features under the topic of ‘crowding out’. Two useful videos and a slideshow are given at the end.

  • Definitions
  • Explanation of what it is
  • Examples
  • Diagrams
  • Outline the difference between complete, partial and no crowding out.

(Macro) Episode 27: Crowding Out & Lags by mjmfoodie

Note that from c. 2mins 50 secs moves on to time lags – it is good revision of this separate topic!

A helpful animated slideshow:

Crowding Out Effect by reffonomics.com – click here

And finally, this is pure genius! …

Crowding-Out Effect Song (Heavy Metal Edition) by medicotube