Tutorial 5Tutorial 5

Multiplier effects and positive Multiplier effects and positive impactsimpacts

Question 1Question 1

What is the multiplier effect?What is the multiplier effect?

answeranswer

The number of times money spent by a tourist The number of times money spent by a tourist circulates through a country's economycirculates through a country's economy

Question 2Question 2

Direct spending is ……………?Direct spending is ……………?

answeranswer

Money spent Money spent by the touristby the tourist in return for goods in return for goods or servicesor services..

Question 3Question 3

Indirect spending is …………….?Indirect spending is …………….?

answeranswer

Money spent by the people/businesses who Money spent by the people/businesses who received direct spending from the touristreceived direct spending from the tourist..

Show the Multiplier Effect in the following shapeShow the Multiplier Effect in the following shape??

Money lost through leakage

Area becomes a more popular

tourist destination, increasing profit &

revenue for reinvestment

Creates jobs indirectly in the

hotels

A new resort hotel is set up in

Hope

Other companies are attracted to the area

More jobs are indirectly created

Taxes spent on improving

infrastructure for residents & tourist services

Workers spend their earned $ in

the local area, increasing

tax revenue.

Businesses supply services to the resort

Laundromat

Grocery Store

Caterer

Florist

Parks

Hospitals

Schools

RoadsGoing to the USA to shop for the weekend, buying a Japanese car

Food

Entertainment

more workers needed to keep up with business

Malls, Restaurants, Car Rental

Answer requiredAnswer required

The answer of this shape will be your The answer of this shape will be your assignment.assignment.

Question 5Question 5

There are many different types of multipliers

reflecting which secondary effects are included.

These types are……………………………………..?

There are five types of multiplier. There are five types of multiplier. Firstly, the income multiplierFirstly, the income multiplier is the is the number of times which an individual amount of tourist expenditure should number of times which an individual amount of tourist expenditure should

be multiplied to identify the total effect on the visited place’s economybe multiplied to identify the total effect on the visited place’s economy . .

The The second and third second and third types are types are the Sales or transaction multiplier the Sales or transaction multiplier which which measures changes in business turnover created by tourism expenditures; measures changes in business turnover created by tourism expenditures; and the and the output multiplier.output multiplier. The latter is similar to the sales multiplier but The latter is similar to the sales multiplier but

includes changes in inventory or stock levels in addition to salesincludes changes in inventory or stock levels in addition to sales . .

The The final two final two types are types are the employment multiplier the employment multiplier which measures which measures changes in economic activity caused by increases or decreases in tourism changes in economic activity caused by increases or decreases in tourism employment, and employment, and the government revenue multiplierthe government revenue multiplier. The latter measures . The latter measures the effect on government revenue of changes in tourism expenditurethe effect on government revenue of changes in tourism expenditure

Different Types of MultiplierDifferent Types of Multiplier

Q6-How to Calculate the following Q6-How to Calculate the following multipliermultiplier ? ?

The Type I sales multiplier.

The Type II sales multiplier.

income ratio multiplier.

Employment ratio multiplier.

Type III Income multiplier.

Type III Income multiplier.

Type III Employment multiplier.

Calculating multiplierCalculating multiplier

The Type I sales multiplier =

direct sales + indirect sales

direct sales.

Types of multipliersTypes of multipliers

The Type II sales multiplier1 =

direct sales + indirect sales + induced sales

direct sales.

The multipliers defined above are called ratio type multipliers as they measure the ratio of a total impact measure to the corresponding direct impact.

Types of multipliersTypes of multipliers

Comparable income and employment ratio type multipliers may be defined by replacing sales with measures of income or employment in the last equations. income ratio multiplier

direct income + indirect income + induced incomedirect income + indirect income + induced income direct incomedirect income..

Employment ratio multiplier direct employment + indirect employment + induced employment direct employment.

Types of multipliersTypes of multipliers

Another way of calculating a multiplier (generally

the preferred approach among economists) is as

a ratio of income or employment to sales.

This kind of multiplier is sometimes called a Keynesian multiplier or response coefficient.

Type III Income multiplier =

direct + indirect + induced income

direct sales

Types of multipliersTypes of multipliers

Type III Employment multiplier = direct employment employment + indirect employment employment + induced employment

direct salesdirect sales

This income (employment) multiplier produces total income (employment) impacts when multiplied by the direct sales.

Question 7Question 7

Ratio multipliers should be used with caution. Discuss?

answeranswer

Ratio multipliers should be used with caution.

In most cases the factory that produces the

good bought by a tourist lies outside of the

local region, creating an immediate “leakage”

in the first round of spending and therefore no

local impact from production of the good.

continuedcontinued

Before applying a multiplier to tourist spending,

one must first deduct the producer prices of all

imported goods that tourists buy (i.e. only include

the local retail margins and possibly wholesale and transportation margins if these firms lie within the region).

Generally, only 60 to 70% of tourist spending appears as final demand in a local region.

Tutorial end ….Thanks a lotTutorial end ….Thanks a lot