- The Basic Idea of the Multiplier
- The Size of the Multiplier
- Why is the Multiplier Greater Than 1?
- The multiplier is greater than 1 because an increase in autonomous expenditure induces further increases in aggregate expenditure—induced expenditure increases.
- The Multiplier and the MPC
- The greater the marginal propensity to consume, the larger is the multiplier. Ignoring the effects of imports and income taxes, the multiplier equals
- Imports and Income Taxes
- The larger is the marginal propensity to import and the larger is the marginal tax rate (the fraction of a change in real GDP that is paid in income taxes), the smaller is the multiplier.
- The general formula for the multiplier is
- Business-Cycle Turning Points
- The forces that bring business-cycle turning points are the swings in autonomous expenditure such as investment and exports. The mechanism that gives momentum to the economy’s new direction is the multiplier.