The document discusses the multiplier concept using three approaches: 1) the withdrawals and injections approach which shows how a shift in injections leads to a multiplied change in equilibrium income, 2) the income and expenditure approach which illustrates the multiplier effect via a shift in the expenditure curve, and 3) using AD/AS analysis by depicting the multiplier as a shift along the aggregate demand curve to a new equilibrium output and price level.

1. The Multiplier

2. A simplified circular flow of income model

3. A simplified circular flow of income model
Cd

4. A simplified circular flow of income model
Incomes Cd

5. A simplified circular flow of income model
Incomes Cd
W=S+T+M

6. A simplified circular flow of income model
J=I+G+X
Incomes Cd
W=S+T+M

7. The multiplier
The withdrawals and injections
approach

8. W, J
The multiplier: (a) a shift in injections
W
a
J1
O
Ye1 Y

9. W, J
The multiplier: (a) a shift in injections
W
b
J2
a
J1
O
Ye1 Ye2 Y

10. W, J
The multiplier: (a) a shift in injections
Multiplier = ∆Y /
∆J
= ∆Y / ∆W
= c− a / b− c
W
b
J2 J2
∆J a ∆W
J1 J1
c
O
Ye1 ∆Y Ye2 Y

11. W, J
The multiplier: (a) a shift in injections
Multiplier = ∆Y /
∆J
= ∆Y / ∆W
= c− a / b− c
= 1/mpw
W
b
J2 J2
∆J a ∆W
J1 J1
c
O
Ye1 ∆Y Ye2 Y

12. W, J The multiplier: (b) a shift in
withdrawals
W1
a
J
O
Ye1 Y

13. W, J The multiplier: (b) a shift in
withdrawals
W1
W2
a c
J
O
Ye1 Ye2 Y

14. W, J The multiplier: (b) a shift in
withdrawals
Multiplier = ∆Y / ∆W
= c −a / a −b
W1
W2
a c
J
∆W b
O
Ye1 ∆Y Ye2 Y

15. The multiplier
The income and expenditure
approach

16. E, W, J The multiplier: a shift in the
expenditure curveY
E1
O Ye1 Y

17. E, W, J The multiplier: a shift in the
expenditure curveY E
2
E1
O Ye1 Ye2 Y

18. E, W, J The multiplier: a shift in the
expenditure curveY E
Multiplier = ∆Y / ∆ J
2
= c− a / b− a
E1
c
∆Y
b
∆J
a
O Ye1 Ye2 Y

19. The multiplier
The multiplier and
AD / AS analysis

20. Showing the multiplier effect on the 45o line and AD/AS diagrams
Y
Cd, W, J
E1
O Y
Y

21. Showing the multiplier effect on the 45o line and AD/AS diagrams
P
AS
AD1
O Y
Y
Cd, W, J
E1
O Y
Y

22. Showing the multiplier effect on the 45o line and AD/AS diagrams
P
AS
AD1
O Y
Y E2
Cd, W, J
E1
O Y
Y Y

23. Showing the multiplier effect on the 45o line and AD/AS diagrams
P
AS
AD1 AD2
O Y
Y E2
Cd, W, J
E1
O Y
Y Y