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Economics A Level (DONEEEEEEE)

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Question:

Using the Multiplier Effect, what can happen when the Governments gives £50 mil to a Firm

Author: eric_galvao



Answer:

-Government gives £50 Mil for Investment purposes. Money used to pay Households for their FoP [Land, Labour..] -£12 Mil will leak out via Withdrawals [Savings, Tax] but the £38 Mil spent on Goods and Services - £38 Mil as Expenditure -Another £10 Mil will leak out as Withdrawals from Firms [Savings, Tax, Imports…] but £28 Mil used to pay Households… -Keeps going on and on, until there is Nothing Left of the Initial Injection. Since the Injection has gone around multiple times, the total effect on Income, Output and Expenditure is More than £50 Mil


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