MYTUTOR SUBJECT ANSWERS

359 views

What is the multiplier effect?

The best way to explain the multiplier effect is through an example.

Imagine that the government invested £100m in building a new hospital. They would need to employ lots of staff to build and work in the hospital. This would provide extra income to these people and they will spend more in shops.

This will create more demand in the economy. Due to this increse in demand the shops will employ more staff and demand more products from their suppliers. As the suppliers have an increase in demand they will also have to employ more staff.

This increase in employment will create extra income in the economy of which some will be spent in shops. This will cause an increase in demand in the economy and the cycle will repeat again and again.

The investment from the government will cause a circular flow of income and spending. This will cause GDP to increase by more than the initial £100m investment.

Linden S. GCSE Economics tutor, A Level Economics tutor, GCSE Maths t...

8 months ago

Answered by Linden, an A Level Economics tutor with MyTutor


Still stuck? Get one-to-one help from a personally interviewed subject specialist

58 SUBJECT SPECIALISTS

£20 /hr

Dan W.

Degree: Economics and Accounting (Bachelors) - Bristol University

Subjects offered:Economics, Maths

Economics
Maths

“I achieved top grades whilst juggling cricket at a high level. I’ve tutored for Young Einstein Tuition & been a Peer Mentor to those facing personal issues”

Roma V. A Level Maths tutor, 13 Plus  Maths tutor, GCSE Maths tutor, ...
£26 /hr

Roma V.

Degree: Mathematics, Operational Research, Statistics and Economics (Bachelors) - Warwick University

Subjects offered:Economics, Maths+ 1 more

Economics
Maths
Further Mathematics

“Top tutor from the renowned Russell university group, ready to help you improve your grades.”

£20 /hr

Joshua D.

Degree: Economics and Mathematics (Bachelors) - Bath University

Subjects offered:Economics, Science+ 2 more

Economics
Science
Physics
Maths

“Enthusiastic tutor from the University of Bath, aiming to push pupils to achieve the best that they can.”

About the author

Linden S.

Currently unavailable:

Degree: Economics and Finance (Bachelors) - Exeter University

Subjects offered:Economics, Maths

Economics
Maths

“I am currently in my third year studying economics and finance at the  University of Exeter. As well as having a strong passion for economics, I have a great love for mathematics too. I have experience in teaching through coaching ten...”

You may also like...

Other A Level Economics questions

What factors cause the aggregate demand curve to shift?

Why might the equilibrium market price of a good change?

Analyse and Evaluate the effects of an reduction in government spending on the economy.

What is the Phillips Curve?

View A Level Economics tutors

We use cookies to improve your site experience. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok