Question
In economics, the "multiplier" concept refers to the ratio
of increase in income to increase in what?Solution
In economics, the multiplier is defined as the ratio of change in national income (or total income) to the initial change in investment or spending. This concept illustrates how an initial increase in investment leads to greater income generation throughout the economy. When investment increases, it creates a ripple effect of spending and income generation, which results in further rounds of consumption and investment. The multiplier effect demonstrates how economic activity can be amplified beyond the initial investment stimulus.
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