multiplier (1 Viewer)

[osak23]

hi

can someone explain the multiplier effect and how any increase in aggregate demand will lead to an increase in GDP?

 

[OzKo]

Say you receive $1000 in wages. You decide to spend $700 and save $300.

Well what happens next?

That $700 is distributed across that economy and then subsequent consumption/saving decisions are made.

What the multiplier effect seeks to explain is how all these subsequent decisions effect the total the GDP.

 

[osak23]

ah k thanks