What is the Keynesian multiplier?
Keynesian multiplier is an economic theory that states that expenditures generate more expenditure, eventually in favor of the economy as a whole. The theory was designed by economist Richard Kahn in the 1930s as an integral part of John Maynard Keyn's more sweeping work, general theory of employment, interest and money . Modern economists are far from united for Kahn or Keynes. The Keynesian multiplier and the whole of Keynes' whole approach are widely discounted as remnants of discredited central economic planning by government. However, their influence persists between some economists and economic schools of thinking.
Example of how the key multiplier should function can consist of a manufacturer that moves to a new community and injures $ 100,000 to the local economy by purchasing goods from local traders. If the nspoiality of EW spends $ 40,000 USDOsví A, $ 35,000 USD B and $ 25,000 with USD C, the multiplication effect predicts that companies A, B and C will spend a certain percentage of its new income with three other companies, which will also spend part of their new income. If each company spent half of its new income, the overall economic activity would be spent overall. In this example, the original $ 100,000 is an increased activity, plus $ 20,000 USD from A, plus $ 17,500 USD $ 12,500 USD $ $ 12,500 by USD C. The point of the Keynesian multiplier is that economic activity is not only increased by an original $ 100,000 but always increases.
economic critics disagree for several reasons. The essence of their criticism is that the Keynesian multiplier makes the prerequisites for economic behavior that are demonstrably false. If, for examplecould cause unlimited increase in activity - as an economic permanent movement machine. Instead, empirical studies have brought multiplication effects less than 1, suggesting that rather than multiplying or even increasing, centralized injection of the crowd from other economic activity.
As an exaggerated example of his faith in the effect of a multiplier, Keynes suggested that governments could simply bury the currency in the country and rent the right to dig it. The result would be full of employment and evaluation of capital. His critics are considering any such unproductive activity completely in error.