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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.
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.
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.
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 ...
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]
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.
Through the analysis of the multiplier he pointed out that other sectors of the economy are also affected. Then he argued that the contraction of the markets in that area tends to have a depressing effect on new investments, which in turn causes a further reduction of income and demand and, if nothing happens to modify the trend, there is a net ...
Government spending may also induce private sector investment via the multiplier effect. This is the ratio of change in national income arising from a change in government spending. As the government spends, the national income rises by more than what is spent, inducing more spending by the private sector. This additional demand stimulates ...