AD + Expenditure Multiplier

Question 1

Define the Expenditure multiplier

Answer 1

The amount that a change in autonomous expenditure is multiplied, increasing GDP due to increased induced spending

Question 2

The multiplier sequential events (3)

Answer 2

1. Increased autonomous expenditure increases real GDP causing induced expenditure to rise also
2. Induced expenditure leads to further rise in GDP
3. Real GDP is higher thanks to both A+I expenditure

Question 3

Multiplier function

Answer 3

           1 - [ b(1 - t) - m ]

Question 4

What can cause leakages from the multiplier? (3)

Answer 4

High taxation
Greater savings
Greater propensity to import