Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
The multiplier effect is the term used to describe the impact that changes in monetary supply can have on economic activity. When an individual, government or company spends money it has a trickle-down effect to businesses and individuals. The resulting impact can be much wider than the initial action.
See upcoming GDP and money supply announcements on our economic calendar.
The multiplier effect can arise in many different forms, such as government spending, exports income, consumer spending and so on. Two common examples of the multiplier effect are:
When a customer deposits cash into a bank, the bank has to keep a certain portion of it (the reserve requirement) but is free to loan the rest out to other customers. Those customers can spend the cash, and it will eventually end up being deposited in another bank.
Part of the new deposit will be reserved by the new bank – once again, because of the reserve requirement – and part of it will be loaned again. This process will carry on until eventually all of the initial deposit is deposited in banks. By this process, the initial deposit has been multiplied and used several times.
If a company has particular success with investment into a new product line, the multiplier effect can be seen in the increase in business for other companies that contribute to the new product (by producing raw materials or transport, for example).
The company’s employees may also receive an increase in salary, which would lead to increased consumer spending. The impact on GDP is thus increased beyond the initial success of the product line.
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