Book contents
- Frontmatter
- Preface
- Contents
- 1 INTRODUCTION
- 2 THE NATIONAL ACCOUNTS AND THE INCOME–CREATION PROCESS
- 3 THE PRODUCTION–INCOME–EXPENDITURE CIRCUIT AND NATIONAL ACCOUNTING IDENTITIES
- 4 THE DETERMINATION OF THE EQUILIBRIUM LEVEL OF REAL INCOME
- 5 THE CONCEPT OF FULL EMPLOYMENT
- 6 MONEY IN THE ECONOMIC PROCESS
- 7 THE BANKING SYSTEM AND THE QUANTITY OF MONEY
- 8 THE CONSUMPTION FUNCTION
- 9 THE DETERMINANTS OF INVESTMENT EXPENDITURE
- 10 THE EFFECT OF CHANGES IN EXPENDITURE PLANS: THE MULTIPLIER CONCEPT
- 11 THE GOVERNMENT SECTOR AND THE DETERMINATION OF REAL INCOME
- 12 THE OPEN ECONOMY
- 13 THE INTERACTION BETWEEN PLANNED EXPENDITURES AND FINANCIAL FACTORS
- 14 INFLATION
- 15 ECONOMIC POLICY
- List of suggested reading
- Index
10 - THE EFFECT OF CHANGES IN EXPENDITURE PLANS: THE MULTIPLIER CONCEPT
Published online by Cambridge University Press: 18 December 2009
- Frontmatter
- Preface
- Contents
- 1 INTRODUCTION
- 2 THE NATIONAL ACCOUNTS AND THE INCOME–CREATION PROCESS
- 3 THE PRODUCTION–INCOME–EXPENDITURE CIRCUIT AND NATIONAL ACCOUNTING IDENTITIES
- 4 THE DETERMINATION OF THE EQUILIBRIUM LEVEL OF REAL INCOME
- 5 THE CONCEPT OF FULL EMPLOYMENT
- 6 MONEY IN THE ECONOMIC PROCESS
- 7 THE BANKING SYSTEM AND THE QUANTITY OF MONEY
- 8 THE CONSUMPTION FUNCTION
- 9 THE DETERMINANTS OF INVESTMENT EXPENDITURE
- 10 THE EFFECT OF CHANGES IN EXPENDITURE PLANS: THE MULTIPLIER CONCEPT
- 11 THE GOVERNMENT SECTOR AND THE DETERMINATION OF REAL INCOME
- 12 THE OPEN ECONOMY
- 13 THE INTERACTION BETWEEN PLANNED EXPENDITURES AND FINANCIAL FACTORS
- 14 INFLATION
- 15 ECONOMIC POLICY
- List of suggested reading
- Index
Summary
In this chapter the consequences of autonomous changes in expenditure plans for the level of economic activity in the two-sector economy are examined. Formally, this consists of an analysis of the impact on the level of real income of a change in either planned investment expenditure or a shift in the functional relationship between consumption expenditure and real income. The important concept of the multiplier, which indicates by how much real income will change as a result of these changes, is introduced.
Throughout the chapter it is assumed that the economy is operating below the full employment level of activity so that increases in demand can be met by increased production resulting from the employment of additional workers. In some cases production is assumed to respond only after a lapse of time. Businessmen are assumed to hold ample stocks of consumption goods; this implies that any unexpected changes in consumption demand can be met either by running down or accumulating stocks of goods, rather than by changing their prices. The production of fixed investment goods is undertaken to meet orders and not in anticipation and ahead of demand. The prices of investment goods are assumed to remain constant.
The multiplier
The multiplier, k, is the ratio between the total change in real income, ΔY, and ΔE, the initial bodily shift of the aggregate demand function which occasioned it.
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- Economic Activity , pp. 165 - 194Publisher: Cambridge University PressPrint publication year: 1967