What Is the Keynesian Multiplier?
The employment multiplier theory is a theory that studies the proportional relationship between the total employment increase directly and indirectly caused by increased investment and the employment increase directly caused by the investment. Employment multiplier theory is an application of Keynes's multiplier theory in employment.
Employment multiplier theory
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- The employment multiplier theory is a theory that studies the proportional relationship between the total employment increase directly and indirectly caused by increased investment and the employment increase directly caused by the investment. Employment multiplier theory is
- The formula of the multiplier principle is: Y: A * [(1 / 1-MPC)]. Where
- Y indicates the new national income that can be increased by a spontaneous expenditure A,
- MPC stands for Marginal Consumption.
- It can be seen from the formula that if a spontaneous expenditure A is used for investment, whether it is for labor-intensive investment or capital technology-intensive investment. The size of Y is only related to the size of A and MPC value, and has nothing to do with the choice of investment method. If a country still has unemployment. At the same time, there are other idle resources. The employment-intensive investment method is the most conducive to solving the employment problem. This is the employment guiding principle given by Keynesian Macroeconomics.
- Keynes proposed for the first time in his General Theory of Employment, Interest and Currency: to increase investment, we must increase the production of investment goods (the means of production), which can increase employment and increase social income; and when income increases, consumption will also change The increase will increase the production of consumer goods, which will increase new employment and increase new income. The ratio of the total employment increase realized in this way to the employment increase directly caused by the investment is called the employment multiplier. Keynes explained the important role of increasing investment in reducing unemployment and getting rid of economic downturn through multiplier theory.