Can you explain the multiplier effect?

The most simple definition of the multiplier effect is an initial injection in to the circular flow of income, that results in a larger final increase in real GDP. This process is a result of additional rounds of spending, and can be shown by changes to the Aggregate Demand curve.
An injection can be in the form of Government Expenditure, Exports and Investment.
An explanation of the multiplier effect can start from the Government deciding to build a motorway. And this can be related to each outward expansion of the AD curve. One must also remember that you can have both positive and negative multiplier effects.

JB
Answered by James B. Economics tutor

2902 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is fiscal policy?


How are is consumer and producer suplus shown on a diagram of supply and demand? How are both the division and amount of total surplus determined?


Why cannot firms in perfect competition sustain supernormal profits in the long run?


What is the law of diminishing (marginal) returns?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning