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How does an initial change in spending multiply through the economy, and how does the accelerator amplify investment?

2.2 The multiplier and the accelerator: the multiplier process, the marginal propensities and the multiplier formula, the accelerator effect, and their role in the economic cycle.

An OCR H460 answer to the multiplier and accelerator, covering the multiplier process, the marginal propensities to consume, save, tax and import, the multiplier formula, the accelerator effect, and how both amplify fluctuations in the economic cycle.

Generated by Claude Opus 4.811 min answerUpdated 2026-06-02

Reviewed by: AI editorial process; not yet individually human-reviewed

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What this dot point is asking
The multiplier process
The marginal propensities and the formula
The accelerator
Role in the economic cycle
Examples in context
Try this

What this dot point is asking

OCR wants you to explain the multiplier process, to define the marginal propensities and use the multiplier formula, to explain the accelerator effect, and to show how both amplify fluctuations in the economic cycle. This is a core quantitative topic.

The multiplier process

The marginal propensities and the formula

Calculating the multiplier and the final change in income

Step 1: state the propensities

The marginal propensity to consume is 0.6. So the marginal propensity to withdraw is $1 - 0.6 = 0.4$ (made up of saving, tax and import leakages).

Step 2: find the multiplier

$\text{Multiplier} = \frac{1}{1 - MPC} = \frac{1}{1 - 0.6} = \frac{1}{0.4} = 2.5$ .

Step 3: apply an injection

The government raises spending by $\pounds 16$ bn. The final change in national income is the multiplier times the injection: $2.5 \times \pounds 16\text{bn} = \pounds 40\text{bn}$ .

Step 4: interpret

A $\pounds 16$ bn injection raises national income by $\pounds 40$ bn, $\pounds 24$ bn more than the initial spending, because each round of re-spending adds further income. If leakages were larger (a lower MPC), the multiplier and the final effect would be smaller.

The accelerator

The accelerator explains why investment swings so violently over the cycle and, combined with the multiplier (the "multiplier-accelerator interaction"), why economies experience booms and slumps: a rise in demand multiplies through income and accelerates investment, reinforcing the upswing, until growth slows and the process reverses.

Role in the economic cycle

The multiplier and accelerator together amplify fluctuations. In an upswing, an injection multiplies into higher income, which accelerates investment, raising demand further. In a downturn, falling demand multiplies into lower income and a collapse in investment, deepening the slump. This interaction is a key reason economies do not grow smoothly and why fiscal stimulus can be powerful (but also why booms can overheat).

Examples in context

Fiscal stimulus. Government spending in 2008 to 2009 and during the pandemic aimed to exploit the multiplier, raising income by more than the initial outlay.
Construction swings. The accelerator is vivid in construction and capital-goods industries, where investment booms and busts far exceed the swings in overall GDP.
Crowding out near full capacity. When the economy is near capacity, the real multiplier shrinks as stimulus feeds into inflation rather than output.

Try this

Q1. The MPC is 0.75. Calculate the multiplier. [2 marks]

Cue. $\frac{1}{1 - 0.75} = \frac{1}{0.25} = 4$ .

Q2. Explain why a higher marginal propensity to import reduces the multiplier. [4 marks]

Cue. More income leaks abroad as imports, so less is re-spent domestically, raising MPW and lowering $\frac{1}{MPW}$ .

Exam-style practice questions

Practice questions written in the style of OCR exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

OCR H460/02 20194 marksIn an economy the marginal propensity to save is 0.2, the marginal propensity to tax is 0.15 and the marginal propensity to import is 0.05. Calculate the value of the multiplier, and find the final change in national income from a

\pounds 20

bn rise in government spending.

Show worked answer →

A short calculate question. The multiplier is $\frac{1}{MPW}$ , where the marginal propensity to withdraw is the sum of the propensities to save, tax and import.

$MPW = 0.2 + 0.15 + 0.05 = 0.4$ , so the multiplier $= \frac{1}{0.4} = 2.5$ .

The final change in national income is the multiplier times the initial injection: $2.5 \times \pounds 20\text{bn} = \pounds 50\text{bn}$ .

Markers reward the MPW, the multiplier value (2.5), and the final change ( $\pounds 50$ bn). A common slip is to use only the MPS in the denominator, which ignores tax and import leakages.

OCR H460/02 202212 marksAssess the importance of the multiplier for the effectiveness of a government fiscal stimulus.

Show worked answer →

A levels-of-response question. Knowledge and application: define the multiplier and explain that an injection raises income by a multiple, because the initial spending becomes others' income, part of which is re-spent. State the formula and that a higher marginal propensity to consume gives a larger multiplier.

Analysis: explain that a large multiplier makes fiscal stimulus more powerful, raising output and employment by more than the initial spending, especially with spare capacity.

Evaluation: the multiplier is smaller when withdrawals are high (high taxes, imports, saving), near full capacity (crowding out and inflation rather than output), and if confidence is low so extra income is saved. Time lags and the state of the economy matter. Conclude that the multiplier is important but its size, and hence the stimulus's effectiveness, depends on the economy's condition.

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Sources & how we know this

OCR A Level Economics (H460) Specification — OCR (2023)