The multiplier process and an explanation of why an initial change in expenditure may lead to a larger impact on national income
When spending in the economy rises, that extra money gets passed on and re-spent multiple times. Each round of spending creates more income, so the final boost to national income exceeds the original injection.
Formula
Multiplier = 1 ÷ (1 − MPC)
Real World
When the UK government's 2009 car scrappage scheme injected £300 million, it generated spending throughout the supply chain — steel, electronics, dealerships — producing a final impact on national income well above the original outlay.
Exam Focus
Show the chain of rounds explicitly in 'explain the multiplier' questions; stating the formula alone without the spending-chain logic will not secure full marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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