IGCSE/GCSE/O & A Level/IB/University Student Forum
Qualification => Subject Doubts => GCE AS & A2 Level => Commerce => Topic started by: azalyee on November 07, 2009, 05:07:44 am
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hi
can any1 explain multiplier effect..
n loanable fund??
even if you got only the definition..
plz
Thanks
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multipier effect is basicallly due to a change in one economic varaible for exam G(govt ecpenditure)..... how it changes the otehr variables in the economic eqn ...
i m sure u know the eqn :D
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dn't understand how it final stop..and wat the variable 'k' refers to???
master786.. Thanks for the hely :D
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k refers to multiplier.
The multiplier is a process whereby an increase or a decrease in the economic variables affecting the circular flow of income, that is injections such as consumption, government expenditure and exports and withdrawals such as savings, taxation and imports, can have amplified effects on national income.
For example, if the govt increases its expenditure (which it will do during a reccession) national income will rise by much more times the amount of the money spent by the government. Likewise, during a reccession, firms will cut down their production and lay off workers - this will lead to a fall in national income but this also induces national income to fall by much more times.
The multiplier process can also be explained through the spillover effects which it has in the economy. If a government increases its expenditure by employing more workers, then the workers will have a greater disposable income. They will demand more goods and services and this increased demand will lead to a greater rise in national income.
The formula for multiplier as you know, is 1/MPS or 1/(1-MPC)
This shows that for each round of expenditure generated in the economy, a small proportion of it is saved and the rest consumed. The bottomline her is "one man's expenditure is another man's income"... The round of expenditures will keep going on in the economy: each time a proportion is saved and the income left is used to buy goods and services.
Thus, the multiplier would stop when consumption would equal zero and the amount calculated as per the multiplier has been reached.
I hope that made some sense... lol. ::) Revise accelerator effect as well if you are taking exams on Thursday!
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wwoooww..Thanks 4 the xplanation priya..it rily help loadz..
if its not too much 2 ask can u xplain wat is meant by loanablefund and also quantity theory of money(fisher's version) please please please.. :'(
Thanks again :D
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Quantity theory of money (Fisher Equation)
MV=PT
M is money supply
V is velocity of circulation
P is pric level
T is transactions or output in the economy
We assume that V and T is constant, so they will not affect the changes in money supply
So, when M increase 10%, P also increase 10%
This are what I know about it as this is A2 Level. Hope you have a clue.
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good job pastyear
It had assume it is under the condition of full employment.
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but how do we use it in an essay??wat is its usefulness??
niway Thanks pastyear n luchien2a to've stop by..
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welcome