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In macroeconomics, a multiplier is a factor of proportionality that measures how much an endogenous variable changes in response to a change in some exogenous variable. For example, suppose variable x changes by k units, which causes another variable y to change by M × k units.
The money multiplier is normally presented in the context of some simple accounting identities: [1] [2] Usually, the money supply (M) is defined as consisting of two components: (physical) currency (C) and deposit accounts (D) held by the general public. By definition, therefore: = +.
This is the same as the formula for Kahn's multiplier in a closed economy assuming that all saving (including the purchase of durable goods), and not just hoarding, constitutes leakage. Keynes gave his formula almost the status of a definition (it is put forward in advance of any explanation [72]). His multiplier is indeed the value of "the ...
The multiplier–accelerator model can be stated for a closed economy as follows: [3] First, the market-clearing level of economic activity is defined as that at which production exactly matches the total of government spending intentions, households' consumption intentions and firms' investing intentions.
This equation implies that if Y rises by 10, then net investment will equal 10×2 = 20, as suggested by the accelerator effect. If Y then rises by only 5, the equation implies that the level of investment will be 5×2 = 10. This means that the simple accelerator model implies that fixed investment will fall if the growth of production slows.
For example, in economics the optimal profit to a player is calculated subject to a constrained space of actions, where a Lagrange multiplier is the change in the optimal value of the objective function (profit) due to the relaxation of a given constraint (e.g. through a change in income); in such a context is the marginal cost of the ...
The MPS plays a central role in Keynesian economics as it quantifies the saving-income relation, which is the flip side of the consumption-income relation, and according to Keynes it reflects the fundamental psychological law. The marginal propensity to save is also a key variable in determining the value of the multiplier.
The complex multiplier is the multiplier principle in Keynesian economics (formulated by John Maynard Keynes).The simplistic multiplier that is the reciprocal of the marginal propensity to save is a special case used for illustrative purposes only.