Tutorial 5 Multiplier effects and positive impacts

Question 1 What is the multiplier effect?

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

Question 2 Direct spending is ……………?

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

Question 3 Indirect spending is …………….?

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

Show 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 Roads Going 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 required The answer of this shape will be your assignment. The answer of this shape will be your assignment.

Question 5 There are many different types of multipliers reflecting which secondary effects are included. These types are……………………………………..?

There are five types of multiplier. Firstly, the income multiplier is the number of times which an individual amount of tourist expenditure should be multiplied to identify the total effect on the visited place’s economy. There are five types of multiplier. Firstly, the income multiplier is the number of times which an individual amount of tourist expenditure should be multiplied to identify the total effect on the visited place’s economy. The second and third types are the Sales or transaction multiplier which measures changes in business turnover created by tourism expenditures; and the output multiplier. The latter is similar to the sales multiplier but includes changes in inventory or stock levels in addition to sales. The second and third types are the Sales or transaction multiplier which measures changes in business turnover created by tourism expenditures; and the output multiplier. The latter is similar to the sales multiplier but includes changes in inventory or stock levels in addition to sales. The final two types are the employment multiplier which measures changes in economic activity caused by increases or decreases in tourism employment, and the government revenue multiplier. The latter measures the effect on government revenue of changes in tourism expenditure The final two types are the employment multiplier which measures changes in economic activity caused by increases or decreases in tourism employment, and the government revenue multiplier. The latter measures the effect on government revenue of changes in tourism expenditure Different Types of Multiplier

Q6-How to Calculate the following multiplier? The Type I sales multiplier. The Type II sales multiplier. income ratio multiplier. Employment ratio multiplier. Type III Income multiplier. Type III Employment multiplier.

Calculating multiplier The Type I sales multiplier = direct sales + indirect sales direct sales.

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

Types 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 multipliers Type III Employment multiplier = employment employment direct employment + indirect employment + induced employment direct sales direct sales This income (employment) multiplier produces total income (employment) impacts when multiplied by the direct sales.

Question 7 Ratio multipliers should be used with caution. Discuss?

answer 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.

continued 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 lot