What Is the Multiplier Effect? Formula and Example
What Is the Multiplier Effect? Formula and Example
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The multiplier effect measures the ratio of change in national income from a change in government spending, the size of the multiplier is affected by the marginal propensity to consume (MPC), the higher the MPC the bigger the multiplier effect is, for example a MPC of 0.5 means as a whole half of the money injected into the circular flow is saved and half is spent. The half that is spent create a smaller version of the fiscal multiplier, as once that money is Spent again the revenue generated by
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