Reference no: EM131234327

The multiplier and the London Olympic bid It is important to remember that people and businesses are at the centre of the workings of the so-called national income multiplier. Take, for example, London's bid for the 2012 Olympic Games. If successful, there will be a huge boost to London and surrounding areas in terms of extra income (and jobs) well beyond the initial £2.4bn of extra government spending promised for the project. The organizers have stated their intention to stage the most compact games in the history of the Olympics, with 17 of the 28 sports to be held in venues within a 15-mile radius of the Olympic Village to be constructed in Stratford, East London. Some 70,000 extra people will be hired to work in and around London before and during the games to provide support services at the various venues, all receiving an income and spending part of it on food, drink, leisure activities, accommodation, transport and so on. Those selling these goods and services to those extra workers will in turn expand output, hire new employees and generate still further employment and income. Of course, many more firms and individuals will benefit. Barbara Cassini, the first Chairman of the London bid, said: ‘2012 will be a powerful catalyst for regeneration. It will lead to massive development with new sports facilities, new jobs and new housing. There will be massive benefits for the construction industry.' One of the biggest beneficiaries of the games will be the east London borough of New ham, one of the most deprived areas in the country, where the main Olympic venues will be built, leading to major regeneration with new parks and community facilities. Once the games are over, the athletes' village will be used for affordable housing for the local community. Around £17bn will be spent on improving road, train and underground links if London secures the 2012 games; the government has already given guarantees that the work will be carried out. A new rail link from King's Cross to Stratford will be constructed for the Olympics, with the journey taking six and a half minutes. Major refurbishment work will be carried out on tube lines to Stratford while a £115m extension will be built to City airport in east London. The government and the Mayor of London have agreed a package that allows for nearly £2.4bn of public funding. This will comprise £1.5bn from the National Lottery and up to £625m from an increase in the London council tax. The London Development Agency has agreed to give £250m if it is needed.

Question

1 Suggest how incomes are likely to rise by much more than the £2.4bn injected by the government into the games.

2 Will all the benefits of this multiplier effect occur in London?

3 What might help the final multiplier effect from the proposed £2.4bn of government expenditure to be larger or smaller?