Concept of multiplier is important form the theoretical as well
as practical point of view. For this reason, the importance of
multiplier in business and economic sector. The importance of the
multiplier can be explained as follows:
1. Importance in investment
Multiplier theory has taken investment as the important factor
of the economy. The proportionate increase in the level of income
and employment in the economy depends up on the multiplier. This
clarifies that increase in income and employment is on the basis of
increase in investment.
2. Analysis of trade cycle
It is easier to analyses trade cycle on the basis of multiplier.
Multiplier helps in estimating the increase in income as a result
of increase in investment. So, multiplier will be of great
importance in formulating progressive policies to bring the effects
in the economy to right speed.
3. Formulation of economic policy
The main objective of every economic policy is to create the
situation of full employment in the economic. Therefore policy
makers will formulate their country's economic policy using the
multiplier. This will help in creating the situation of full
employment.
4. Public investment
Public investment is of great importance specially in the
situation of depression and unemployment, because this does not
stress much on profits. Multiplier indicates the importance of
public investment in increasing the level of employment.
5. Equality between saving and investment
The equality between saving and investment can be brought about
with the help of multiplier. Increase in investment increases the
income. Increase in income will bring about equality in saving and
investment.
