Multiplier

• Positive multiplier - An increased injection leads to a greater final increase in real GDP.
• Negative multiplier - A decrease in an injection leads to a decrease in the final real GDP.
• The multiplier effect refers to the increase in final income arising from any new injection of spending.
• Multiplier = change in GDP/change in injection
• Marginal propensity to consume (MPC) + Marginal propensity to save (MPS) = 1
• Multiplier = 1/1-MPC = 1/MPS
• Total increase in national income = injection x multiplier
• The lower the savings, the faster the growth and faster recovery.

  Higher savings, slower growth and slow recovery.
• Multiplier = 1/MPW = 1/MPS + MPT + MPM

  MPW - marginal propensity to withdraw

  MPT - marginal propensity to tax

  MPM - marginal propensity to import