Multiplier Effect
The multiplier describes how initial spending changes translate into larger output changes. The multiplier = 1/(1-MPC) where MPC is the marginal propensity to consume.
Real World
The 2012 London Olympics involved roughly £9 billion of government spending, which generated an estimated £40–50 billion in total economic activity across construction, hospitality, and transport — illustrating a multiplier of around 4–5.
Exam Focus
For 'evaluate' questions, always discuss why the multiplier may be smaller in practice — imports, taxes, and savings are key leakages.
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