MYTUTOR SUBJECT ANSWERS

296 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...

7 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

55 SUBJECT SPECIALISTS

£26 /hr

Liam B.

Degree: Mathematics & Economics (Joint Honours) (Bachelors) - Durham University

Subjects offered:Economics, Maths

Economics
Maths

“I am currently an undergraduate student studying Mathematics & Economics at Durham University. I have always found myself enjoying Maths during my...”

£24 /hr

Anahita G.

Degree: Maths and Economics (Bachelors) - York University

Subjects offered:Economics, Science+ 3 more

Economics
Science
Maths
Chemistry
.TSA. Oxford.

“I am a maths and economics student at the University of York. I have always loved logical and analytical subjects, for example Maths and the Sciences. I also particularly enjoy economics as there are countless ways to analyse and conc...”

£26 /hr

Oscar A.

Degree: Politics, Philosophy and Economics (Bachelors) - Oxford, Balliol College University

Subjects offered:Economics, -Oxbridge Preparation-

Economics
-Oxbridge Preparation-

“2nd year Oxford PPEist, prize-winner and experienced tutor offering economics tutorials”

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

How would a change in income affect the quantity demanded of an inferior good?

What is the Current Account

What is price discrimination?

Explain why, in theory, a perfectly contestable market results in an efficient allocation of resources

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