Answer to Question #113051 in Macroeconomics for Akansha

Question

Explain the process of multipler in a two sector economy using suitable diagram.

Answer 1

A multiplier refers to an economic factor that, when applied, amplifies the effect of some other outcome.

In economics, a multiplier broadly refers to an economic factor that, when increased or changed, causes increases or changes in many other related economic variables. In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it.

The term multiplier is usually used in reference to the relationship between government spending and total national income. Multipliers are also used in explaining fractional reserve banking, known as the deposit multiplier.