Complex multiplier

Complex multiplier

The complex multiplier is 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

Notes

References

Parry, Greg and Kemp, Steven. Exploring Macroeconomics, 7th edition, tactic publications. ISBN 1-875313-230


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