What Is the Multiplier Effect?

Multiplier Effect is a kind of macroeconomic effect and a kind of macroeconomic control means. It refers to the degree of chain reaction caused by the change of economic aggregate caused by the increase or decrease of a certain variable in economic activity. Fiscal policy multiplier is the study of the impact of changes in fiscal revenue and expenditure on the national economy, including fiscal expenditure multipliers, tax multipliers, and balanced budget multipliers.

Multiplier effect

Common types of multiplier effects in practice are monetary (policy) multiplier effects, investment, or public

The multiplier effect includes both positive and negative effects. when

The multiplier effect can't be moved in a rigid way, otherwise it will lose the slightest difference.

In 2001, the United States suffered a terrorist attack on September 11 and two buildings were destroyed. When Americans were so frustrated, some uninteresting economists jumped out and made some ridiculous remarks, saying that the terrorist attack was a great benefit to the US macro economy.

They reasoned that the U.S. Congress approved an emergency budget of $ 40 billion, which created the first round of demand and increased revenue, which is expected to take effect within a year. This increase in spending will continue to create the next round of demand. After some calculations, economists believe that when the US economy was in a downturn in 2001, this 40 billion US dollars increase in expenditure could eventually increase the gross national product by 100 billion US dollars ... At the time of the boom, the increase in fiscal expenditures was a boost.

This seems strange. If the loss of two buildings can promote the development of the national economy, why don't Americans blow up a few buildings by themselves, why bother the terrorists?

Others have reached the opposite conclusion based on the multiplier principle. Since the multiplier principle can amplify the benefits as well as the disadvantages, those buildings are very valuable, and the dead and injured elites are invaluable. Therefore, the US economy will decline and enter a vicious circle.

However, it turns out that after 9/11, the United States economy has not made rapid progress and has not failed. Are both conclusions wrong? Or is the multiplier effect wrong?

In fact, the problem is that in social and economic life, the "multiplier effect" is more than one, but countless. This is not to say that the "multiplier effect" does not exist, but to say that we cannot just stare at a "multiplier effect". We must know that the numerous "multiplier effects" will cancel each other out and will mutually exclude each other. The results are unpredictable.