Chapter 30: The Multiplier

  • Created by: Sin Heng
  • Created on: 29-01-20 14:00
  1. What is the multiplier process? 

It is when an increase in investment or any other injection leads to an even greater increase in income, (assuming the injection is not determined by income). 


  1. Who proposed the 'multiplier effect'? 

John Maynard Keynes 


  1. What are the factors that affect the size of the multiplier? 

  • Higher the leakages (what is not spent), the smaller the multiplier. Therefore there will be a smaller increase in income. 

  • Changes in MPC, MPS, MPT and MPM will cause a change in the multiplier. 

-when MPC rises, value of multiplier increases 

-when MPW rises, value of multiplier decreases 

This is because as MPC rises, MPW falls and vice versa 

  • Any change in factors that affects the proportion of income spent (e.g. interest rates), as it would affect the marginal propensities. 

  • Any factor apart from income that changes imports


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