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Keynesian economists often calculate multipliers that measure the effect on aggregate demand only. (To be precise, the usual Keynesian multiplier formulas measure how much the IS curve shifts left or right in response to an exogenous change in spending.)
In Keynesian economics, the transfer payments multiplier (or transfer payment multiplier) is the multiplier by which aggregate demand will increase when there is an increase in transfer payments (e.g., welfare spending, unemployment payments). [1]
In monetary economics, the equation of exchange is the relation: = where, for a given period, is the total money supply in circulation on average in an economy. is the velocity of money, that is the average frequency with which a unit of money is spent.
This is the central contents of the money multiplier theory, and + / / + / is the money multiplier, [1] [2] a multiplier being a factor that measures how much an endogenous variable (in this case, the money supply) changes in response to a change in some exogenous variable (in this case, the money base).
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 multiplier effect is exploited by governments attempting to use fiscal stimulus policies to increase the general level of economic activity. This can be done in a period of recession or economic uncertainty, when unemployment of labor is high and other resources are underutilized.
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.
The accelerator effect in economics is a positive effect on private fixed investment of the growth of the market economy (measured e.g. by a change in gross domestic product (GDP)). Rising GDP (an economic boom or prosperity) implies that businesses in general see rising profits, increased sales and cash flow, and greater use of existing capacity.