The ‘Multiplier effect’ tells us by how much National Income will increase, following a given injection into the economy (e.g.: an increase in government spending) - Leaving Cert Economics - Question 6 - 2011
Question 6
The ‘Multiplier effect’ tells us by how much National Income will increase, following a given injection into the economy (e.g.: an increase in government spending).
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Worked Solution & Example Answer:The ‘Multiplier effect’ tells us by how much National Income will increase, following a given injection into the economy (e.g.: an increase in government spending) - Leaving Cert Economics - Question 6 - 2011
Step 1
Explain the underlined term.
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Answer
The 'Multiplier effect' refers to the phenomenon where an initial increase in spending leads to a larger increase in national income. This occurs because the initial spending stimulates further spending in the economy, resulting in a cascading effect.
Step 2
Outline two economic effects which an injection may have on an economy.
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Increased Demand: An injection such as government spending boosts the demand for goods and services, encouraging higher production levels.
Increased Employment: As demand rises, businesses may need to hire more workers, reducing unemployment and increasing consumer spending power.
Step 3
Given the following information: National Income = €600m; The Multiplier is 2; Injection of €20m. Calculate the new level of National Income. (Show your workings.)
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To find the new level of National Income, we can use the formula:
New National Income = Initial National Income + (Injection × Multiplier)
Substituting the values:
New National Income = €600m + (€20m × 2)
New National Income = €600m + €40m = €640m.
Step 4
State and explain two reasons for the falling demand for residential property.
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Higher Interest Rates: Increased interest rates make borrowing more expensive, leading to decreased demand for mortgages and homes.
Economic Recession: Economic downturns reduce consumer confidence and financial stability, resulting in less willingness to invest in property.
Step 5
State and explain one reason for the growth in these ‘ghost estates’.
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Surplus of Houses: During economic booms, many houses were built, but with the subsequent downturn, demand plummeted, leaving many homes incomplete and contributing to the formation of ghost estates.
Step 6
Suggest two economic actions the Government could take in relation to these ‘ghost estates’.
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Demolish the unfinished properties to prevent environmental blight and reduce maintenance costs.
Complete the houses and offer them on the market to provide affordable housing options.
Step 7
Explain each of the underlined terms.
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Opportunity Cost: This is the cost associated with the next best alternative that is foregone when making a decision. It reflects the trade-offs inherent in any economic choice.
Step 8
State two examples of major infrastructure projects recently completed in Ireland.
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Terminal 2 Dublin Airport
Motorways throughout Ireland
Step 9
Outline one economic benefit for continuing to spend on Ireland’s infrastructure.
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Reduced Costs of Completion: Ongoing investment helps to ensure that existing projects can be completed more efficiently and economically, potentially lowering overall costs and benefiting the economy.
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