IGCSE/Unit 2: Unemployment - Positive and Negative Multiplier Effects

An initial change in aggregate demand can have a much greater final impact on equilibrium national income. This is known as the multiplier effect. It comes about because injections of new demand for goods and services into the circular flow of income can stimulate further rounds of spending – in other words “one person’s spending is another’s income”. Put another way, spending becomes someone else’s income. This can lead to a bigger eventual effect on output and employment.


Here are three recent news videos covering aspects of the multiplier effect at work:

Irish economy seeks foreign direct investment to sustain their economic recovery

This piece on jobs lost at Bombardier in Derby is particularly good about the wider knock-on economic effects: Bombardier trains: Loss of contract felt across UK

On a positive note here is the opposite effect...a positive multiplier....,Mostyn port deal over windfarm creates 100 new jobs