Unit 3.6 · Demand Management (Fiscal Policy)
Keynesian Multiplier (HL only)
AO2AO4HL
Syllabus Requirement
Multiplier formulas: 1/(1 − MPC) or 1/(MPS + MPT + MPM); shows how injections have amplified effects on GDP.
Assessment Objectives
AO2Application and Analysis
AO4Use of Appropriate Skills
HLThis topic is assessed at Higher Level only.
Summary
The Keynesian multiplier illustrates how an increase in injections into the economy leads to a more significant rise in aggregate demand. This concept is important in fiscal policy as it helps to understand how government spending and other injections can stimulate economic activity.