Multiplier process in economic growth??? (1 Viewer)

[laracroft]

weve started doing economic growht, n ive been reading this stuff on the multiplier process n i have no idea wat its about. i dunget the deffinition or the example they give......does any1 have an explanation???
thanks

 

[tWiStEdD]

A multiplier effect is no single event. It comes in infinitly different shapes and sizes. Simply, it is where one event (in theory) begins a continous cycle of events.

^ N => ^ GDP => ^GDPpc => ^ DD => ^ Market Size => ^ N

and so on. That is just an example, as valid as any. if you start anywhere on that cycle, you will just go around in circles achieving many positives through a multiplier effect.

 

[i-color]

the multiplier effect is just basically how one small change in the economy can lead to enormous impacts as this change is felt through the different stages of the circular flow.

for example, suppose that consumer's real income increases. This would lead to increase in consumption as they have more disposable income, which leads to higher revenue for suppliers, which leads to increased production as there is higher demand for the good, which means increased output, production etc which means economic growth.

As the increase in income of consumers travel through the circular flow, the amount gets multiplied through the multiplier effect.

 

[laracroft]

thanks guys