the multiplier effect ♥
Wednesday, September 12, 2007
10:34 pm
in the multiplier process, the initial increase in the AE expands the circular flow of income, increasing the income of the factor earners who further expand the circular flow of income with new transactions. as long as transactions are made, the circular flow of income will continue to expand until the withdrawal effects is equal to the initial injections which will cease the expansion of the circular flow of income. consequently, the national income will increase by several folds, depending on the value of the multiplier.