Created 3/10/1998
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The Multiplier

J. Bradford DeLong

How large is the multiplier? The size of the multiplier depends on the size of the marginal propensity to consume, which determines the slope of the aggregate demand line on the income-expenditure diagram.

Because the aggregate demand line slopes upward, a small upward or downward shift in any of the components of spending and thus in the position of the aggregate demand line generates a large rightward or leftward shift in the point where the lines cross--in the economy's equilibrium value of national product and aggregate demand.

The level at which national product and total spending are equal shifts by a multiple of the original shift in spending--hence the name "multiplier."

Income-Expenditure Diagram    Stepping Through the Multiplier    The Multiplier and the MPC     

Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax

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