Respuesta :
Answer:
The MORE the multiplier effect , the LESS government spending needed to achieve given amount of GDP increase
Explanation:
Multiplier denotes the multiple times resultant increase in income , due to causal investment increase .
Multiplier 'k' = Change in Income ΔY / Change in Investment ΔI = 1/ (1-MPC). This happens because initial investment (Eg:100) increases income by same amount (100) .Then, portion of that income depending on MPC [Additional Change in consumption due to additional change in income] is spent on consumption (Eg : MPC = 0.5 implies 0.5 of change in Investment i.e 100 = 50 is spent on Consumption) . One person's expenditure is other person's income . So , 50 becomes additional income in second round. Similarly , 25 out of 50 is spent on consumption & becomes someone else's income in third round .
This keeps on happening till : Change in Income = 1/(1-MPC) i.e 1/0.5 = 2 times Investment Increase 100, and becomes 200 .
So , bigger multiplier would magnify smaller investment increase into a larger income increase & hence needs less investment to achieve income growth target.
