**The Basic Idea of the Multiplier**

**The Size of the Multiplier**

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

Multiplier =

**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.

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