When there is a rise in equilibrium as a result of a marginal change in the value of autonomous expenses then it is called the multiplier effect. For an appropriate example to explain this phenomenon on can focus on Figure 11.5 it is seen that a rise of $0.5 trillion in autonomous expenses has led to a rise of $2 trillion in the equilibrium expense. In the case of the figure it is noticed that the rise of equilibrium expense is much more than that of the autonomous expenses. It can thus be concluded that the value of the multiplier in this case is more than 1.

When the autonomous expense witnesses a hike the aggregate planned expense increases and the GDP is exceeded. This rise leads to a decrease in the inventory of the firm. An attempt to balance and reach equilibrium is carried out. Induced expenses rise with the increase in real GDP. There is an intricate relationship in the variations in induced expenses and autonomous expenses as a result of increase in equilibrium expenses. Even though all the examples which have been elaborated speak of rise in equilibrium expenses and real GDP the phenomenon of a fall in the values also exist. There is a similar relation of decrease in the values of autonomous expense and equilibrium expenses as explained in the figure.

 

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