Unit 2 Macro: The Multiplier Process and Multiplier Effect

An initial change in aggregate demand can have a much greater final impact on the level of equilibrium national income. This is known as the multiplier effect

It comes about because injections of new demand for goods and services into the circular flow of income stimulate further rounds of spending – in other words “one person’s spending is another’s income." This can lead to a bigger eventual effect on output and employment

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