ILO:
a) The multiplier ratio
b) The multiplier process
c) Effects of the multiplier on the economy
d) Understanding of marginal propensities and their effects on the multiplier:
o the marginal propensity to consume (MPC)
o the marginal propensity to save (MPS)
o the marginal propensity to tax (MPT)
o the marginal propensity to import (MPM)
e) Calculations of the multiplier using the formulae 1/(1MPC) and 1/MPW, where MPW=MPS+MPT+MPM
f) The significance of the multiplier to shifts in AD
a) The multiplier ratio
b) The multiplier process
c) Effects of the multiplier on the economy
d) Understanding of marginal propensities and their effects on the multiplier:
o the marginal propensity to consume (MPC)
o the marginal propensity to save (MPS)
o the marginal propensity to tax (MPT)
o the marginal propensity to import (MPM)
e) Calculations of the multiplier using the formulae 1/(1MPC) and 1/MPW, where MPW=MPS+MPT+MPM
f) The significance of the multiplier to shifts in AD
Multiplier Ratio
The multiplier ratio is the ratio of a change in equilibrium real income to the autonomous change (the injection) that brought it about.
For example, if a £1m injection into the circular flow results in a £2m increase in national income, the value of the multiplier is 2.
Questions:
Injection £2 mill increase in national income is £3 mill, what is the multiplier?
Injection £0.5 mill increase in national income is £1.75 mill, what is the multiplier?
Injection £4 mill increase in national income is £8.7 mill, what is the multiplier?
Change in national income is £8 mill the multiplier was 2, what was the injection?
Change in national income is £6.5 mill the multiplier was 3.5, what was the injection?
Change in national income is £3.4 mill the multiplier was 1.3, what was the injection?
For example, if a £1m injection into the circular flow results in a £2m increase in national income, the value of the multiplier is 2.
Questions:
Injection £2 mill increase in national income is £3 mill, what is the multiplier?
Injection £0.5 mill increase in national income is £1.75 mill, what is the multiplier?
Injection £4 mill increase in national income is £8.7 mill, what is the multiplier?
Change in national income is £8 mill the multiplier was 2, what was the injection?
Change in national income is £6.5 mill the multiplier was 3.5, what was the injection?
Change in national income is £3.4 mill the multiplier was 1.3, what was the injection?
Multiplier Process
An injection into the circular flow of income, such as the sale of exports, means that there is an immediate increase in AD. However, the extra income raised by selling goods and services abroad will increase the incomes of those making the goods and services and at least some of this income will be spent in the economy. Whatever is not withdrawn from the circular flow will
cause second round increases in AD, which lead to further rounds of income and spending. These knockon effects are the multiplier effects of injections. When injections decrease, the process works in reverse – i.e. there will be a downward multiplier effect. 
How important is this figure for Govt policy?

Effects of the multiplier on the economy on
Rates and allowances: Income Tax

The most important factor in determining the size of the multiplier is the size of the withdrawals from the circular flow – what proportion of the additional income is saved by households, what proportion is spent on imported goods and what proportion is paid to the government in the form of taxation.
Task: Research a recent economic fiscal change and analyse the impact it'll have on the UK economy. 
Marginal Propensities
Marginal  refers to an aggregate change.
Propensity  refers to an inclination or natural tendency to behave in a particular way.
Within economics this will then be measured i.e. if MPC = 0.4, and an economic agent receives an additional £100 a month then £40 of this will be spent on consumption. The other 60% (0.6) will become a leakage from the circular flow through a combination of tax, imports and savings. Each of which will have their own marginal propensity figure.
Key words:
Propensity  refers to an inclination or natural tendency to behave in a particular way.
Within economics this will then be measured i.e. if MPC = 0.4, and an economic agent receives an additional £100 a month then £40 of this will be spent on consumption. The other 60% (0.6) will become a leakage from the circular flow through a combination of tax, imports and savings. Each of which will have their own marginal propensity figure.
Key words:
 (MPC)  the proportion of one additional unit of income that is spent on domestic G/S
 (MPS)  the proportion of one additional unit of income that is saved
 (MPT)  the proportion of one additional unit of income that is taxed by the Government
 (MPM)  the proportion of one additional unit of income that is spent on imports (foreign G/S)
Calculations of the multiplier
There are 2 formulas that can be used. The choice will be based upon the information provided in the question.
1/(1MPC)
and
1/MPW, where MPW=MPS+MPT+MPM
Question:
Assume the marginal propensity to consume for UK households was on average 0.2. Calculate the value of the multiplier for the UK. (2 marks)
Assume MPS = 0.2, MPT = 0.15, MPM = 0.4. Calculate the overall change in GDP if the Government inject £100 million into the economy through a supply side policy? Calculate the real GDP assuming an inflation rate of 3.5%?
1/(1MPC)
and
1/MPW, where MPW=MPS+MPT+MPM
Question:
Assume the marginal propensity to consume for UK households was on average 0.2. Calculate the value of the multiplier for the UK. (2 marks)
Assume MPS = 0.2, MPT = 0.15, MPM = 0.4. Calculate the overall change in GDP if the Government inject £100 million into the economy through a supply side policy? Calculate the real GDP assuming an inflation rate of 3.5%?
The significance of the multiplier to shifts in AD
Size of the multiplier
AD2 to AD3 smaller influence on eco growth and cyclical U than a larger multiplier that shifts AD2 to AD4. However the OC of this level of growth is the demand pull inflation it creates and the impact this may have on the current account. Size of the multiplier becomes an important aspect to consider for the Govt. when conducting expansionary fiscal policy. They will need to strike the right balance between the Govt. budget position and their macro economic objectives achieved through increasing AD. Knowing the size of the multiplier will help them do this. 
State of the Economy
Although the multiplier is associated to additional shifts in AD beyond the initial injection, the effects on the economy will be determined by its interaction with AS. Assuming a Keynesian SRAS where prices and wages are sticky, the growth of Y to Y2 incurs no OC. However as U falls and resources become more scarce between AD3 to AD4, the increase in AD needs to more controlled. If operating at full potential a multiplier is purely inflationary (p4 to p5) however hopefully I expenditure of supply side policy would be occurring to encourage an increase in LRAS. 
NB  not all forms of G will create a multiplier i.e. interest repayments on debt. Also the size of the multiplier might be influenced by what G or I are on i.e. education/infrastructure/R&D subsidy/Olympics 2012.
Task: Explain how a negative multiplier would of influenced the size and duration of the recession that began in 2008. (6 marks) Assess the significance of the multiplier for the UK Government during the 2008 recession and how this may of influenced their fiscal policy decisions. (NB  remember fiscal policy involves both G & T) (10 marks) 