Briefly discuss about the concept of multiplier

Multiplier: The term “Multiplier” is generally used in Economics to mean the effect of 1-unit change in exogenous variable on some endogenous variables. It is defined as the amount which tells us how much equilibrium level of income/output changes when the autonomous aggregate demand changes (by 1 unit). 

A multiplier is the ratio of the change in an autonomous component of aggregate expenditures.

Formula: It depends on the marginal propensity to consume and is defined as follows:

The larger the MPC (lower the MPS), the larger will be the value of the multiplier.

Some points about multiplier:

(i) The multiplier tells us how much output changes when there is a shift in aggregate demand.

(ii) The multiplier is larger than 1 because any given change is investment demand sets off further changes in consumption demand.

(iii) The size of the multiplier depends on the Marginal Propensity to Consume.

(iv) The larger the MPC, the larger the multiplier.