ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The multiplier effect refers to the effect on national income and product of an exogenous increase in demand. For example, suppose that investment demand increases by one. Firms then produce to meet this demand. That the national product has increased means that the national income has increased.

Detailed explanation-2: -The multiplier effect occurs when an initial injection into the circular flow causes a bigger final increase in real national income. This injection of demand might come for example from a rise in exports, investment or government spending.

Detailed explanation-3: -The size of the multiplier depends on the percentage of deposits that banks are required to hold as reserves. When the reserve requirement decreases, the money supply reserve multiplier increases, and vice versa.

Detailed explanation-4: -In economics, a multiplier broadly refers to an economic factor that, when increased or changed, causes increases or changes in many other related economic variables. In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it.