Question

Explain what is meant by the spending multiplier and explain what variable(s) determine its size?

Answer 1

Expenditure multiplier is the ratio of the change in GDP to the change in aggregate expenditure which caused the change in GDP.the multiplier has a value greater than one . spending multiplier represent the multiple by which GDP Increase or decrease in response to an increase and decrease in government expenditure and investment.the spending multiplier is closely related to the multiplier effect.

The size of the multiplier is determined by what proportion of the marginal dollar of income goes into taxes , saving and imports .these three factors are known as leakage because they determine how much demand leaks out in each round of the multiplier effect.