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In economics what is a multiplier?

Updated: 8/23/2023
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When used in economics, the term multiplier refers to a proportion factor that measures how much a variable happens to change in response to a change in another variable. The most common multipliers in economics are money multipliers and fiscal multipliers.

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15y ago

the amount of money the banking system generates with each dollar of reserves (Mankiw 2008)

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Q: In economics what is a multiplier?
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Types of multiplier?

tree multiplier CSA (carry select adder) multiplier shift & add multiplier Higher radix multiplier


What is investment multiplier?

Investment MultiplierIn economics, the multiplier effect refers to the idea that an initial spending rise can lead to even greater increase in national income. In other words, an initial change in aggregate demand can cause a further change in aggregate output for the economyinvestment multiplier is simply the multiplier effect of an injection of investment into an economy.In general, a multiplier shows how a sum injected into an economy travels and generates more output.For example: a company spends $1 million to build a factory. The money does not disappear, but rather becomes wages to builders, revenue to suppliers etc. The builders will have higher disposable income as a result, so consumption, hence aggregate demand will rise as well. Say that all of these workers combined spend $2 million dollars in total, since there was an initial $1 million input which created a $2 million output, the multiplier is 2.Another example is when a tourist visits somewhere they need to buy the plane ticket, catch a taxi from the airport to the hotel, book in at the hotel, eat at the restaurant and go to the movies or tourist destination. The taxi driver needs petrol for his cab, the hotel needs to hire the staff, the restaurant needs attendants and chefs, and the movies and tourist destinations need staff and cleaners.It must be noted that the extent of the multiplier effect is dependent upon the marginal propensity to consume and marginal propensity to import. Also that the multiplier can work in reverse as well, so an initial fall in spending can trigger further falls in aggregate output.The basic formula for the economic multiplier, in macroeconomics, the change in equilibrium GDP divided by the change in investment (i.e. the initial increase in spending).It is particularly associated with Keynesian economics; some other schools of economic thought reject, or downplay the importance of multiplier effects, particularly in the long run. The multiplier has been used as an argument for government spending or taxation relief to stimulate aggregate demand.The reader should know that "Keynesian economics" is something quite different from the "economics of Keynes". Thus the "other" schools that reject the multiplier effects are those associated with the "economics of Keynes". This school sees the so-called "multiplier effect" as being a variant of the "broken window fallacy" While there may indeed be some small short run impact on unemployed resources from an "initial" cash infusion due to "money illusions", by definition, when inputs are fully employed, by definition, there is no socially useful purpose served by this infusion, other than to fool people into working harder than they wish, for the returns they receive by "working".The concept of the economic multiplier on a macroeconomic scale can be extended to any economic region. For example, building a new factory may lead to new employment for locals, which may have knock-on economic effects for the city or region.OK


What happens to the income multiplier if the aggregate supply curve is vertical?

the multiplier is zero.


What is the relevance of multiplier effect to government policy in economics?

Local, State, and National Governments typically will attempt to shape policy around the idea of a multiplier effect if they understand the concept. The idea is of course that policies will attract more spending in their respective forum and so enjoy the benefits of the monetary multiplier. This means for example that one dollar ($1) spent in a local economy such as Atlanta may generate as much as $4-$10 in economic growth to the local community. This same concept can be true for spending on the state and national levels.


Why can't you have a money multiplier of inifinity?

The money multiplier is the reciprocal of the reserve requirement, which can only be a finite number.

Related questions

What has the author Paramsothy Silvapulle written?

Paramsothy Silvapulle has written: 'Testing stationary nonnested short memory against long memory processes' -- subject(s): Economics, Mathematical, Mathematical Economics, Regression analysis, Statistical hypothesis testing, Time-series analysis 'A Lagrange multiplier test for seasonal fractional integration' -- subject(s): Fractional integrals, Time-series analysis, Multiplier (Economics), Econometrics


What has the author K K Saxena written?

K. K. Saxena has written: 'Steel industry in India and its employment multiplier effects' -- subject(s): Employment (Economic theory), Iron and steel workers, Multiplier (Economics), Steel industry and trade


Types of multiplier?

tree multiplier CSA (carry select adder) multiplier shift & add multiplier Higher radix multiplier


Is a seesaw a force multiplier or a speed multiplier?

force multiplier


What is super multiplier?

super multiplier refers to interaction of the multiplier and accelerator.


Is the arm lever a distance multiplier or a force multiplier?

Well, i'd say its both. depends on the case to specify when it is a force multiplier or a distance multiplier.


Is a bottle opener a speed or force multiplier?

Force Multiplier


Finite population multiplier in finance management?

finite population multiplier finite population multiplier


If the tax multiplier is -2 what is the government multiplier?

3


Is pulley a speed multiplier or a force multiplier?

force


Which part of the multiplication sentence tells how many times a number is multiplied?

The multiplier. The multiplicand is multiplied by the multiplier to create the product.


What does mister mayhem-multiplier meN?

mister mayhem multiplier