Using the concept of the multiplier, assess the contribution of “one-off factors such as

the Queen’s Diamond Jubilee and the London Olympics” to economic growth.

Investment is an injection into the circular flow. The multiplier effect shows the impact on
aggregate demand and income, of a change in an injection. It is calculated using the formula: 1/(1-
MPC) or 1/MPW. This is the marginal propensity to withdraw.

One-off factors such as the Queen’s Diamond Jubilee and the London Olympics may help increase
economic growth. This is because there will be an increase in consumption from the increase in
tourism for the Jubilee and the Olympics. These tourists will spend money in the UK on goods and
services e.g. Hotels, food etc. This money will increase consumption which will cause aggregate
demand to increase and, therefore, cause the economy to grow. However, the impact will vary in
different regions of the UK. In London, there may be more economic growth as that is where the
Olympics and the Diamond Jubilee parade took place. However, some smaller towns further away
from London may have experienced a fall in the size of their economy. This is because many people
would have left these small towns to spend the summer in London, whilst all the events were taking
place. This meant that aggregate demand for goods and services in those towns would have
decreased due to the lack of people. This could hinder economic growth.

Another reason to why the economy could grow, is because of the increase in employment levels.
Both the Jubilee and the Olympics would involve large companies hiring many people to help with
the planning, designing and construction. This high demand for workers will result in the workers
getting paid higher wages, which they can spend on goods and services which will boost the
aggregate demand level and the economy. However, this will only be the case in the short-term. In
the long-term, after these projects have been built then the firms wont need such a large supply of
labour. They will then flay off the workers. The workers wont have jobs and will be collecting
jobseekers allowance, which will make them a strain on the economy.

As you can see, after an initial rise in AD (Y1 -Y2 )

there is a further increase in AD due to the multiplier
effect (Y3). This causes the economy to grow and
increases real output/GDP. This the effect that the
Olympics and Jubilee are likely to have on the
London’s (maybe UK) economy in the short-term.