The multiplier shows how an increase in spending (injection) produces a more than proportional increase in national income.

- The multiplier effect indicates the overall change in income due to the expenditure (investment) that took place.

- It is calculated by multiplying the value of the multiplier by the total injection (investment).

**Explanation:**

- The initial spending becomes someone's income

- They spend some and save some

- The spent portion becomes someone else's income

- This someone spends some and saves some

- And so, it goes on ...

This is known as the multiplier effect

For example, if you picked up a R100 and spend R75 and decide to save R25.

Then your marginal propensity to consume \((\mathrm{mpc})=\mathbf{0 . 7 5}\) and your marginal propensity to save \((\mathrm{mps})=\mathbf{0 . 2 5}\).

Therefore: \(\mathrm{mpc}+\mathrm{mps}=1\)

There are only two things one can do with new income and that is spend or save it.

**NOTE:**

- Marginal = Additional

- Propensity = Likelihood