2.4.4 The Multiplier

Question 1

What is the definition of the multiplier effect ?

Answer 1

• A process by which any changes in the components of AD will lead to an even greater change in national output.

Question 2

How is the multiplier calculated ?

Answer 2

1/1-(MPC)

Question 3

What does the multiplier bring about?

Answer 3

Further rounds of spending. One agents spending is another agents income.

Question 4

Question : The government injects £100m into new gov spending programs. The MPC for consumers at the time of injection is 0.8

Calculate the final change in GDP

Answer 4

Multiplier : 1/0.2 = 5
5x100 = 500
Final output = 500m

Question 5

How would the multiplier be illustrated on the Keynesian curve.

Answer 5

A double shift in AD.

Question 6

What determines the size of the multiplier

Answer 6

• The volume of the MPC