The Multiplier and links to Keynesian Economics

What determines the value of the multiplier?

The value of the multiplier depends on:

Key points

When will the multiplier effect be large?

In short – the multiplier effect will be largerwhen

  1. The propensity to spend extra income on domestic goods and services is high
  2. The marginal rate of tax on extra income is low
  3. The propensity to spend extra income rather than save is high
  4. Consumer confidence is high (this affects willingness to spend gains in income)
  5. Businesses in the economy have the capacity to expand production to meet increases in demand

Evaluation: Time lags and the multiplier effect

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