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The money multiplier formula shows the effects of the Federal Reserve discount rate. It does not show a money supply or low interest rates on creditors over a period of time.

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โˆ™ 2014-06-05 13:29:55
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What is investment multiplier?

Investment MultiplierIn economics, the multiplier effect refers to the idea that an initial spending rise can lead to even greater increase in national income. In other words, an initial change in aggregate demand can cause a further change in aggregate output for the economyinvestment multiplier is simply the multiplier effect of an injection of investment into an economy.In general, a multiplier shows how a sum injected into an economy travels and generates more output.For example: a company spends $1 million to build a factory. The money does not disappear, but rather becomes wages to builders, revenue to suppliers etc. The builders will have higher disposable income as a result, so consumption, hence aggregate demand will rise as well. Say that all of these workers combined spend $2 million dollars in total, since there was an initial $1 million input which created a $2 million output, the multiplier is 2.Another example is when a tourist visits somewhere they need to buy the plane ticket, catch a taxi from the airport to the hotel, book in at the hotel, eat at the restaurant and go to the movies or tourist destination. The taxi driver needs petrol for his cab, the hotel needs to hire the staff, the restaurant needs attendants and chefs, and the movies and tourist destinations need staff and cleaners.It must be noted that the extent of the multiplier effect is dependent upon the marginal propensity to consume and marginal propensity to import. Also that the multiplier can work in reverse as well, so an initial fall in spending can trigger further falls in aggregate output.The basic formula for the economic multiplier, in macroeconomics, the change in equilibrium GDP divided by the change in investment (i.e. the initial increase in spending).It is particularly associated with Keynesian economics; some other schools of economic thought reject, or downplay the importance of multiplier effects, particularly in the long run. The multiplier has been used as an argument for government spending or taxation relief to stimulate aggregate demand.The reader should know that "Keynesian economics" is something quite different from the "economics of Keynes". Thus the "other" schools that reject the multiplier effects are those associated with the "economics of Keynes". This school sees the so-called "multiplier effect" as being a variant of the "broken window fallacy" While there may indeed be some small short run impact on unemployed resources from an "initial" cash infusion due to "money illusions", by definition, when inputs are fully employed, by definition, there is no socially useful purpose served by this infusion, other than to fool people into working harder than they wish, for the returns they receive by "working".The concept of the economic multiplier on a macroeconomic scale can be extended to any economic region. For example, building a new factory may lead to new employment for locals, which may have knock-on economic effects for the city or region.OK


What is circular flow model for an open economy?

it is a flow that shows the flow of money openly


What diagram shows the movement of goods and services and money from firms to households and from households to firms?

Circular flow


The supply curve shows the relationship between what?

the supply curve shows the relationship between


The circular flow model of a mixed economy shows .?

The circular flow model of a mixed economy shows _____.

Related questions

What formula shows the arrangement of atoms in a molecule?

The type of formula that shows this information is a "structural" formula.


What is the financial formula to determine equity multipliers?

The definition of "equity multiplier" is the measure of financial leverage and shows a company's total assets per dollar of stakeholder's equity. It is calculated as: Total Assets divided by Total Stockholder's Equity.


Which formula shows the numbers and types of atoms in a molecule but not the bond?

The molecular formula shows the numbers and types of atoms in a molecule, but not how they are bonded. The structural formula shows how the atoms are bonded.


Which formula shows a substance that is not molecular?

A formula unit.


What shows a chemical formula?

== ==


Which formula shows the number and types of atoms in a molecule but not the bonds?

A molecular formula shows the types and numbers of atoms in a molecule, but not the bonds. A structural formula shows the way in which the atoms bond.


Which formula for a molecule shows the arrangements of the atoms?

The empiracle formula shows the ratio of the individual elements in a compound, and the molecular formula shows the actual number of each elemental atom in each molecule (which will be equal to the empiracle formula or a whole number multiple of it). However, it is the structural formula that shows how the individual atoms are connected.


What formula shows the location of the atoms to another in a molecule an shows the number and location of bonds?

That is a structural formula. For example, the chemical formula for water is H2O and its structural formula is H-O-H, which shows how the atoms are arranged in the molecule.


What shows the elements in a compound?

Formula


What chemical formula shows the arrangement of atoms in a molecule?

This is a structural formula.


What is the formula for a molecule?

The chemical formula that shows how the compound exists in nature


How does a compounds formula differ from a model?

A compound formula shows which elements are in that compound and how many; whereas, a model shows the bonds that are involved.

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