Multiplier Effect
An important implication of Marginal Propensity to Save is measurement of the multiplier. A multiplier measures the magnified change in aggregate product i.e. the gross domestic product, resulting from a change in an autonomous variable (for example, government expenditure,investment expenditures,etc.).
The effect of a change in production creates a multiplied impact because it creates income which further creates consumption. However, the resulting consumption is also an expenditure which thus, generates more income, which creates more consumption. This next round of consumption leads to a further change in production, which generates even more income, and which induces even more consumption.
And thus,as it goes on and on, it results in a magnified, multiplied change in aggregate production initially triggered by a change in autonomous variable, but amplified by the creation of more income and increase in consumption.
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“Man is endogenous, and education is his unfolding. The aid we have from others is mechanical, compared with the discoveries of nature in us. What is thus learned is delightful in the doing, and the effect remains.”
—Ralph Waldo Emerson (1803–1882)