Multiplier is an integral part of Keynes theory of income and employment. Changes in aggregate spending cause a change in the national income. Multiplier measures the magnitude of change in national income to a change in aggregate spending. The shift in national income is caused by a change in any autonomous component of aggregate spending, for example, increase or decrease in investment. Given the rupee amount of the shift in investment spending, the change in national income will be several times larger, or some multiple of this amount. This multiple is called ‘multiplier’. For example, if the desired investment rises by Rs. 10 crores and the resulting change in total income is Rs. 50 crores, the multiplier is 5.

In Keynesian economics, multiplier explains the relationship between a change in investment spending and income, therefore, it is called ‘investment multiplier’. Thus, multiplier si the ratio of change in income to a change in investment. Symbolically,

                K = ΔY/ Δ I
Where    K = Investment Multiplier,
                ΔY = Change in National Income, and
                ΔI = Change in Investment Expenditure.

For more help in Multiplier click the button below to submit your homework assignment