idea that an increase in AD because of an increased injection (exports, government spending or investment) leads to a further increase in national income.
what is ratio?
final change in income to the initial change in injection- figure multiplied by original injection to find final change in income.
initial injection will represent?
increase in spending and will increase income for someone else which will then leadtofurtherconsumption spending.
size of the multiplier determined by?
how much of an increase in income people will spend, the marginal propensity to consume (MPC).
The lower the leakages, the higher the MPC, the bigger the multiplier.
negative multiplier effect?
occur i.e. a withdrawal from the economy could lead to an even further fall in income, decreasing economic growth and possibly leading to a decline in the economy.
This means that government plans to cut deficits will lead to an even further decrease of the economy.
