The multiplier effect is a major contributor to economic instability, because it significantly increases the impact of any fluctuation in spending on the economy. For instance, using the Canadian multiplier of 1.6, fluctuations in investment spending (or any other type of spending) of a magnitude of $5 billion will cause the GNP to fluctuate by about $8 billion. Thus, the multiplier effect helps to explain how relatively small fluctuations in investment spending can cause GNP and the economy in general to fluctuate by a considerably larger amount.
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