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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 other important aspect of the multiplier is that to the extent that government spending generates new consumption, it also generates "new" tax revenues. For example, when money is spent in a shop, purchases taxes such as VAT are paid on the expenditure, and the shopkeeper earns a higher income, and thus pays more income taxes.
Holds with respect to multiplication over addition. This identity is of prime importance in simplifying algebraic expressions: [27] [28] (+) = +. Identity element The multiplicative identity is 1; anything multiplied by 1 is itself. This feature of 1 is known as the identity property: [27] [28]
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 accelerator effect operates in reverse as well: when the GDP declines (entering a recession), it negatively impacts business profits, sales, cash flow, capacity utilization, and expectations. Consequently, these factors discourage businesses from making fixed investments, which further intensifies the recession due to the multiplier effect. [2]
In the United States, the fiscal conservatism movement believes that balanced budgets are an important goal. Every state other than Vermont has a balanced budget amendment, providing some form of ban on deficits, while the Oregon kicker bans surpluses of greater than 2% of revenue. The Colorado Taxpayer Bill of Rights (the TABOR amendment) also ...
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The end result is a magnified, multiplied change in aggregate production initially triggered by the change in investment, but amplified by the change in consumption i.e. the initial investment multiplied by the consumption coefficient (Marginal Propensity to consume).