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MENTAL MODEL · M6461

Multiplier Effect

Multiplier Effect
BusinessHigh supportEconomics
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

An initial expenditure, through repeated circulation and re-spending, multiplies total income and output, reflecting the amplifying effect of injections.

SCAFFOLDING EFFECT

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The multiplier effect (English: Multiplier Effect), more fully known as the income/expenditure multiplier effect, is a concept in macroeconomics that refers to the disproportionate change in aggregate demand resulting from a change in a variable in economic activity. This concept is usually associated with Keynesian economics, while other schools of economics underestimate or deny its importance for the macroeconomy, especially in the long run. When an event occurs, if the cause that triggers it expands, the result will also expand to a greater extent. For example, when the market is booming, an expansion of government investment or public spending and a reduction in taxes have a multiplied effect on national income, thereby producing an expansionary effect on the macroeconomy. Principle According to Keynes's absolute income theory, consumption expenditure is influenced by current income level, and there is a functional relationship between the two, namely: C = a + b (Y-t), ...

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In macroeconomics, an initial expenditure triggers a chain of consumption/investment through the income-expenditure cycle, causing total output to multiply. The mechanism is the 'marginal propensity to consume'—each round of new income is partially re-spent, accumulating cyclically, so the total effect is greater than the initial injection (multiplier = 1/(1-MPC)).

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Source support: Explicit

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    zh.wikipedia.orghttps://zh.wikipedia.org/wiki/%E4%B9%98%E6%95%B0%E6%95%88%E5%BA%94ZH · Explicit
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