Definition
- Multiplier
- The multiplier is the ratio of the final change in real GDP to the initial change in spending that caused it.
- Not to be confused with: Marginal propensity to consume
- The marginal propensity to consume is the share of each extra pound of income that a person spends on consumption.
Test yourself
What is the difference between multiplier and marginal propensity to consume?
Marginal propensity to consume: The marginal propensity to consume is the share of each extra pound of income that a person spends on consumption.