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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. Then the multiplier is M.
For the simplest possible case, [1] let P be the size of a policy action (a government spending change, for example), let y be the value of the target variable (GDP for example), let a be the policy multiplier, and let u be an additive term capturing both the linear intercept and all unpredictable components of the determination of y.
In economics, the fiscal multiplier (not to be confused with the money multiplier) is the ratio of change in national income arising from a change in government spending.
This example shows us how the multiplier is lessened by the existence of an automatic stabilizer and thus helping to lessen the fluctuations in real GDP as a result of changes in expenditure. Not only does this example work with changes in T, it would also work by changing the MPI while holding MPC and T constant as well.
Also called resource cost advantage. The ability of a party (whether an individual, firm, or country) to produce a greater quantity of a good, product, or service than competitors using the same amount of resources. absorption The total demand for all final marketed goods and services by all economic agents resident in an economy, regardless of the origin of the goods and services themselves ...
Trickle-up economics (also known as bubble-up economics) is an economic policy proposition that final demand among a broad population can stimulate national income in an economy. The trickle-up effect states that policies that directly benefit lower income individuals will boost the income of society as a whole, and thus those benefits will ...
Kahn's most notable contribution to economics was his principle of the multiplier. The multiplier is the relation between the increase in aggregate expenditure and the increase in net national product (output). [2] It is the increase in aggregate expenditure (for example government spending) that causes the increase in output (or income). [4]
However, the size of this multiplier effect is likely to be diminished by two considerations: first, an upward push that the new spending gives to interest rates, which diminishes spending on goods such as physical capital and consumer durables; and second, an upward push that the spending gives to the general price level, which diminishes the ...