multiplier effect

define multiplier effect

states that an initial ejection into the economy will lead to a bigger final increase in GDP

how would a new hospital increase consumtion of goods and services

1. construction workers, doctors and nurses now have jobs

2. construction firm to build hospital has an increase in prfits

3. local businesses benefit from increased consuption as being near hospital

draw a positive multiplier effect

three evaluative points of the multiplier effect

1. the size of the multiplier is unknown so its difficult to determaine its benefits

2. if people save the extra income or buy imports

3. business and consumer confidence

what is the calculation for multiplier effect

1/1-PMC or 1/MPW