Multiplier

The initial equilibrium real national output is at 0Y with an average price level of 0PL.  An injection (J) into the economy (e.g. additional government expenditure) will INITIALLY cause a right shift in AD to ADJ.  This additional expenditure generates an income for the suppliers.  A proportion of this additional income is then spent on domestic goods whist the remainder is withdrawn.  This will repeat itself until the additional income spent is miniscule. The proportions that is spent in each round of spending shifts the AD curve further right to AD1 where the economy has grown to 0Y1, however the price level will rise to PL1