Travel Reference
In-Depth Information
TABLE 14.4
Formula for the Multiplier
1
1 MPC
Multiplier
¼
where
M
¼
marginal (extra)
P
¼
propensity (inclination)
C
¼
consume (spending, MPC)
savings (money out of circulation, MPS)
Suppose $1,000 of tourist expenditure and an MPC of
1
/
2
. Then
S
¼
$1; 000:00
þ
$500:00
1
=
2
1; 000
þ
250:00
1
=
2
2
ð
Þ
1; 000
þ
125:00
1
=
2
3
ð
Þ
1; 000
þ
62:50
1
=
2
4
ð
Þ
1
;
000
þ
31:25
5
ð
1
=
2
Þ
1; 000
þ
1
=
2
6
15
:
63
ð
Þ
1
;
000
þ
7:81
1
=
2
7
ð
Þ
1; 000
...
$2,000.00 (approx.)
1
Multiply
:
=
2
$1; 000; or 2 $1; 000 ¼ $2; 000
1
1
Thus, the original $1,000 of tourist expenditure becomes $2,000 of income to the
community.
additional funds for tourism promotion to their areas if they knew more about the income that was
generated by tourist expenditures. Also, improved and added developments of facilities to serve
tourists might be more forthcoming if prospective investors could have more factual data upon which
to base decisions.
To understand the multiplier, we must
first make some approximation as to what portion of the
tourist dollars received in a community is spent (consumed) and what portion is saved (leakage). To
illustrate this, suppose that we had a total of $1,000 of tourist spending in a community and that there
was an MPC of 0.5. The expenditure pattern might go through seven transactions in a year. These are
illustrated in Table 14.4. The other formula for the multiplier is 1/MPS. This is a simpler formula,
because it is the reciprocal of the marginal propensity to save. If the marginal propensity to save were
0.34, the multiplier would be 3. This is shown in Table 14.5.
Leakage,asde
ned, is a combination of savings and imports. If we spend the money outside our
country for imports, obviously it does not stimulate the economy locally. If it is put into some form of
savings that are not loaned to another spender within a year, it has the same effect as imports
not
stimulating the economy. Thus, to get the maximum bene
ts economically from tourist expenditures,
we should introduce as much of the tourist funds as possible into the local economy for goods and
services rather than save the proceeds or buy a large amount of imports.
—
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