Spending creates further spending
Spending creates further spending
An initial £10 billion government injection becomes income for households and firms. With a 20% leakage rate, £2 billion leaks from this initial income and £8 billion is spent, creating income for others and starting another round of spending.
Step-by-step lessons on Edexcel A A Level Economics 2.4.4 The multiplier. Each one builds up to exam-style questions. Start with the core supply-and-demand models before moving on to the more evaluation-heavy macroeconomic policy topics.