multiplier process

Question 1

define the multiplier effect

Answer 1

happens when an initial change in spending leads to a larger and more widespread final impact on an economy’s total output or income

Question 2

what does it illustrate

Answer 2

how changes in spending can create a ripple effect throughout the economy, generating more economic activity

Question 3

when is the multiplier effect likely to be strong and impact GDP strongly

Answer 3

if the extra income stays inside the circular flow.

Question 4

what does an initial change in an injection or leakage cause?

Answer 4

can have a greater final impact on equilibrium national income

Question 5

what do injections of demand into the circular flow of income stimulate

Answer 5

further spending leading to bigger final effect on level of nation’s output and employment

Question 6

define positive multiplier effect

Answer 6

initial increase in an injection leads to a greater final in level of real GDP

Question 7

define negative multiplier effect

Answer 7

initial decrease in an injection for or an increase in a leakage leads to greater final decrease in level of real GDP

Question 8

what does the multiplier show in a closed economy with no government

Answer 8

shows the impact of a change in investment on national income only leakage from circular flow.