Multiplier shows how initial change in spending creates amplified change in national income. Multiplier = 1/(1-MPC) = 1/MPS. Example: If MPC = 0.8, multiplier = 5; Rs. 1 crore initial investment generates Rs. 5 crore total income increase. Mechanism: Initial spending creates income for recipients, who spend portion (MPC) of income, creating further income, which generates further spending, etc. Each round adds less because MPS removes portion from spending stream. Total effect = Initial injection × Multiplier. Investment multiplier: ΔY = ΔI × [1/(1-MPC)]. Consumption multiplier: Similar principle applies to consumption changes. Government spending multiplier: Government spending increases income through same process. Tax multiplier: Tax reduction has multiplier effect on consumption (weaker than spending multiplier). Limitations: Assumes idle resources, stable MPC, no price changes, closed economy, no supply constraints. Real-world: Multiplier smaller than theoretical due to leakages (saving, taxes, imports), time lags, structural constraints. Indian example: MGNREGA spending creates multiplier effects through consumption. ICAI calculations: Given MPC, calculate multiplier; given initial injection, calculate income change. Exam tip: Higher MPC = higher multiplier; multiplier is always > 1 (for positive MPC < 1).