Complex multiplier
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[edit] The complex multiplier
The multiplier principle in keynesian economics (formulated by John Maynard Keynes). The multiplier is a rather simplistic version of this. It applies to any change in autonomous expenditure, in other words, a change in consumption, investment, government expenditure or net exports. Each of these operates to increase or reduce the equilibrium level of income in the economy.
- any increase to an injection will be multiplied to result in a higher level of aggregate expenditure.
- Any decrease in an injection will be multiplied to result in a lower lvl of aggregate expenditure.
- Any increase in a withdrawal will be multiplied to result in a lower lvl of Aggregate expenditure.
and...
- Any decrease in a withdrawal will be multiplied to result in a higher lvl of aggregate expenditure.
The size of the multiplier should take account of all sectors. The complex multiplier can be measured by the following formula:
k= 1/ [MPS+MPT+MPM] = 1 / MPW
where MPS= Marginal propensity to save, MPT= Marginal propensity to tax, MPM= marginal propensity to import. MPW = Marginal propensity to withdraw
[edit] References
Parry, Greg and Kemp, Steven. Exploring Macroeconomics, 7th edition, tactic publications. ISBN 1-875313-230
