Question

Explain the working of multiplier.​

Answer 1

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$\underline\bold{Multiplier\: Principal}$

⭐The multiplier principle is a direct implication of Keynesian economics.

⭐The key to the multiplier principle is induced expenditures, expenditures that depend on aggregate production and income, especially induced consumption expenditures.

⭐ The multiplier effect refers to the increase in final income arising from any new injection of spending. The size of the multiplier depends upon household's marginal decisions to spend, called the marginal propensity .


$\huge\mathfrak{Thanks}$

Answer 2

Multiplier is a double-edged weapon. ... The higher the MPC, the greater the value of the multiplier and greater the cumulative decline in income. In other words, a community with a high propensity to save is affected less by the reverse operation of the multiplierthan the one with a low propensity to save.

The multiplier effect. ... The multiplier effect refers to the increase in final income arising from any new injection of spending. The size of the multiplier depends upon household's marginal decisions to spend, called the marginal propensity to consume (mpc), or to save, called the marginal propensity to save (mps).

To work out the multiplier, first add or subtract the percentage from 100, then convert to a decimal. Example: we want to add 20% to £110. To work out the multiplier, add 20 to 100, to get 120, and then change it to a decimal (divide by 100) to get 1.2.