The Multiplier Effect

Question 1

What is a positive multiplier effect?

Answer 1

when an initial increase in an injection (or a decrease in a leakage e.g. low savings due to low interest rates & less imports due to a weak pound) leads to a greater final increase in real GDP

Question 2

What is the marginal propensity to consume?

Answer 2

the fraction of an increase in disposable income that people plan to spend on domestically produced goods