What is an investment multiplier?
Investment multiplier is a financial concept or idea associated with investment activity. A general understanding is that if there is an increase in the amount of private or public investment expenditure, the impact of this activity will have a positive impact on the general economy, which is somewhat larger than expected. From this point of view, the multiplier is an attempt to look for an instantly measurable benefits derived from activity, identify and try to quantify the secondary benefits that also occur.
The use of a multiplier investment requires a few steps. The first involves identifying the immediate and main benefits generated by investment activities. From there, closer inspection can facilitate identification of other benefits that will start to accumulate by somewhat chain reaction to initial activity. How these other advantages are identified, sometimes there is an attempt to find out what events have let these activities have been and what impact they had on the economy.
An example of how an investment multiplier occurs is to consider a consumer who uses his one -time income to buy second -hand. The previous owner decides to save ten percent of this sales revenue and use another ninety percent to purchase a new motorcycle. The seller who sold the motorcycle saves part of the funds received, but uses the rest to buy motorcycle equipment from the supplier. This series of events suggests that beyond the benefits generated from the initial transaction of the subsequent transaction, which occurred as a result of this first action, have brought further benefits for the economy.
If the concept of the multiplier investment in the government situation, assume that local municipalities will decide to launch a project for Repair in one part. This investment decision helps to increase the intake of road builders and finishers who work on the project. Will probably save part of this increased income, butThey spend the rest on goods and services they want or need. This allows sellers who have supplied these goods to pay higher wages to their employees, which eventually brought an even greater advantage for the local economy.
Investors, Civic Planners and many corporations are considering the idea of an investment multiplier in evaluating the viability of the start of the new project. By identifying the primary benefits associated with the project, it is possible to find out whether it is really worth it. Hence, the assessment of the other benefits, which occurs within the continuing influence of this initial decision, to further justify the project and facilitate the understanding of the long -term consequences of the event.