The multiplier effect refers to the phenomenon where an initial change in spending or investment leads to a larger final impact on aggregate demand and national income.
Think of throwing a pebble into a calm pond. As ripples spread out from the point of impact, they grow larger and affect a wider area. Similarly, when money is injected into an economy, it creates a ripple effect by stimulating spending and generating additional income.
Fiscal Policy: Government actions related to taxation and spending aimed at influencing economic conditions.
Consumption Function: A mathematical equation that shows how changes in disposable income affect consumer spending.
Accelerator Principle: The idea that changes in investment are driven by changes in expected future levels of consumption.
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