Lesson 22 - The multiplier

Question 1

Define the term multiplier?

Answer 1

The multiplier is when an increase in spending leads to a larger overall increase in GDP than the initial change in spending.

Question 2

Why does the multiplier effect occur?

Answer 2

The initial spending will have an impact on the circular flow of income - resulting in more spending and income for others in the economy.

Question 3

The size of the multiplier effect depends on what?

Answer 3

How quickly income leaks from the circular flow.