The Multiplier

Question 1

Multiplier

Answer 1

A change in an AD component by an injection can lead to a multiplied final change in GDP and employment stimulating further rounds of spending

Question 2

Positive multiplier

Answer 2

An initial increase in an injection or decrease in leakage leads to a greater final increase in real GDP

Question 3

Negative multiplier

Answer 3

An initial decrease in an injection or increase in leakage leads to a greater final decrease in real GDP

Question 4

MPW

Answer 4

Withdraw = leakages

MPTax + MPSave + MPiMport

Question 5

Multiplier formula

Answer 5

1 / 1-MPC

OR

1/MPW

• Affected by crowding out, spare capacity, MPM, MPT, MPS and inflation