How the multiplier effect of investment works

The investment multiplier comes from the marginal propensity to consume, which is the investment multiplier, so the more propensity to spend, the more effective the investment will be.

At present, the propensity to consume in China is too low, because of the polarization of incomes and the unreasonable pricing of goods.

When you invest 1 yuan out, you may earn back the yuan, and then invest it to become a yuan, which is derived from 1 yuan, which is the multiplier effect.

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Analysis: It is a macro economic effect and a means of macroeconomic control. The fiscal policy multiplier is the study of the impact of changes in fiscal revenue and expenditure on the national economy, including the fiscal expenditure multiplier, the tax multiplier and the balanced budget multiplier.

The multiplier effect is a change in a variable that causes an increase in the final quantity by way of multiplier acceleration.

The multiplier effect is a factor to be considered in formulating macroeconomic policies.

Is there a multiplier effect in management? And how to play the multiplier effect?

Does the implementation of a certain policy in management have a multiplier effect? And this multiplier effect is what managers are looking for. For example, the implementation of a sales promotion plan, we hope that this plan can be multiplied, but we often find that if there is no other strategy to implement the package, the multiplier effect is difficult to achieve.

For example, in terms of incentive policy, managers adopt methods such as outcome incentives or process incentives, but the best results may only have an effect on certain specific behaviors, while continuous incentives or spontaneous incentives cannot be achieved. In this, managers want to be able to achieve a multiplier effect, that is, one measure has multiple effects.

There are many examples of multiplier effect in ancient China, for example, loyalty and filial piety in ancient times is a multiplier effect in a sense, for loyal and filial piety, the education or encouragement of the monarch or elders to them is only limited to a few occasional lectures or rewards, but this kind of thinking has continued. A good multiplier effect is achieved.

Managers also want to make management achieve a multiplier effect. But there is a problem to note here, the multiplier effect is not a one-and-done one. The multiplier effect consists of a series of measures.

Only when these corresponding supporting measures have played an effective role can the multiplier effect occur. The so-called supporting measures are the supporting measures that make the effect of the original measures further exert, such as incentives in management, if the simple incentive is impossible to continue to play a role without incentives. It must be matched with the corresponding corporate culture.

Only by doing a good job of these measures can the effect be exerted.

Consider a two-sector economy: y=c+i, where c=a+by, where b is the marginal propensity to consume, then the investment multiplier is k=1 (1-b).

If the investment increases the ΔI, in the process of buying investment products, the person who invests in the product will get the ΔI income, and this part of the income will flow into the hands of residents in the form of wages, interest, profits and rents, and the income of residents will increase the ΔI. This increase in national income will be used for consumption, i.e., the purchase of consumer goods, so that the funds used for consumption will flow into the hands of the owners of the factors of production that produce consumer goods in the form of wages, interest, profits, and rents, thus increasing the national income by bδi. In the same way, this bδi fund has b*bδi for consumption, which increases the national income by b*bδi, and so on.

Thus, the increase in national income resulting from an increase in investment δi is.

y=δi+bδi+b*bδi+..b(n-1 power) δi = δi (1-b).

On the first floor, the mathematical principles are given, but I am still a little puzzled by his explanation, that is, according to this explanation, the exogenous variables of the system of equations obtained by the two equations y=c+i and c=a+by have a multiplier effect. The explanation I gave is shown in the image. Although it is not a principle and process, it is very intuitive, and I hope it will help you.

Suppose there is no investment in the initial state, i.e., the production equilibrium state is at point a. Now there is an investment in i, and the production equilibrium has reached point b. It can be seen that the increase in output y is much higher than the increase in i. This is known as the investment multiplier effect.

Multiplier-Acceleration Principle.

It is a traditional business cycle theory. This theory holds that the root of economic fluctuations lies in the economy itself, so it is endogenous, specifically, changes in investment will cause changes in income or consumption by several times (multiplier effect), and changes in income or consumption will cause changes in investment by several times (acceleration effect), and it is the interaction between multipliers and accelerations that causes cyclical fluctuations in the economy. Therefore, this theory is called the multiplier acceleration number model.

As an example, if the economy initially increases spontaneous spending (investment, or purchase, or export) by $1 billion for some reason, if the multiplier is 2, the national income increases by $2 billion. When production or sales increase, manufacturers will increase equipment or build new plants, that is, they will increase investment. If an increase of 1 unit of production requires an increase of 1 unit of capital goods, the ratio between investment and increase in production is called the acceleration number, which is now 1.

Thus, a $2 billion increase in national income would increase investment by $2 billion. An increase of $2 billion in investment would result in an additional $4 billion in output or income. An increase in output leads to a further increase in investment and, in turn, to an increase in income or output.

Of course, the economy will not expand indefinitely, because there will be constraints in the end. For example, shortages of some factors of production can limit the expansion of the economy. Once the economy stops expanding, or the rate of growth slows, investment declines and the economy begins to head into recession, resulting in cyclical fluctuations.

Wishing you prosperity to the owner of the building and the wealth is rolling.

The multiplier principle is also known as the multiplier principle. Refers to an economic theory in which a change in one variable causes another related variable to change exponentially due to a chain reaction.

The investment multiplier is the ratio between the amount of change in income caused by changes in investments and the amount of changes in investment expenditures. Investment multiplier = 1 (1 - marginal propensity to spend).

The formula can be expressed as k=1 (1-b) or y= i (1-b), where b is the marginal propensity to consume, y is the change in income, and i is the change in investment expenditure.

For example, if the investment increases by 100 yuan, the marginal propensity to consume is, then the increase in investment leads to the increase in national income.

y= i (1-b)=100 (yuan).

The investment multiplier is k=1 (1-b)=1 (i.e., an increase of 1 unit of investment expenditure can increase the national income by 5 units.

When the total investment increases, the increase in income will be several times the increase in investment, and this multiple is represented by k, which is the investment multiplier, which represents the ratio of the change in income to the change in investment expenditure that brings about this change. The formation process, in fact, is that the increase in investment is used to buy investment goods, in fact, it is the purchase of the factors of production used to manufacture investment goods, and the money from these investments will flow into the hands of the owners of the factors of production in the form of wages, profits, interest and rents, in fact, in the hands of the residents, because they produce these investment goods, which is the first round of increase in the national income of investment. After that, the income that flows into the hands of the population will be used for consumption in part, that is, in the amount of marginal propensity to consume, which is the second round of increase.

And so on, to get a formula, increased income = i+i*b+i*b*b+i*b*b*b+......i*b (n-1), i is the increase in investment, b is the marginal propensity to consume, the formula is an infinite geometric progression, because b < 1, so k = increased income Increased investment = 1 (1-b), which is the investment multiplier

It's original, oh, pro >-

Investment increases, employment increases, and national income increases

Additional information

An increase in investment, an increase in employment, an increase in national income, an increase in employment, an increase in national consumption, a change in the size of the investment multiplier in the same direction as national income, and an increase in final income that is a multiple of the initial increase in investment.

Many scholars believe that since the 90s, China's industry has taken the road of capital intensity, so that there has been a phenomenon of capital excluding labor, the employment elasticity coefficient has been decreasing, and the economic growth model has become more and more like low employment growth or no employment growth.

In view of this, they suggested that the focus of Li's macroeconomic policy should be changed and a development model that prioritizes employment rather than growth. After empirical analysis, this paper argues that the fundamental crux of job shortage is still the lack of effective demand, thus returning to Keynes's classic proposition that effective demand determines employment, and denying the employment-first development model.

Effective demand includes both investment and consumption. Keynes mainly emphasized the multiplier effect of investment on how to expand effective demand, but his investment theory faced a dynamic dilemma.

Under the effect of the law of diminishing marginal consumption tendency, the larger the national income in the next period, the greater the difference between the national income and the consumption in the next period, and the more difficult it is to rely on investment to fill the gap between income and consumption.

In this regard, Keynes wanted to start by improving income distribution and thus increasing the propensity to spend. However, he mainly relied on non-market means, such as the use of tax revenues to carry out secondary sub-bureau allocation, and the establishment and improvement of the social security system.

High investment rates have been a thorny problem for China's economy, and many researchers have studied it, but these studies have not yielded convincing results. This paper argues that China's high investment rate** is consistent with the growth of national income under full employment.

a.Investment increases, employment increases, and national income increases.

b.Employment increased, and national consumption increased.

c.The size of the investment multiplier changes in the same direction as the income of the country.

d.The size of the investment multiplier moves in the opposite direction of national income eThe increase in the final income is a multiple of the increase in the final investment.

Correct answer: ABCE

Answer: Keynes not only believed that investment is the driving force of economic growth, but also argued that investment has a multiplier effect on economic growth. The so-called multiplier effect of investment refers to the multiple of income growth caused by every 1 yuan of investment, and the multiplier changes in the same direction as the marginal tendency to reduce high and leak fees, and the greater the marginal consumption tendency, the larger the multiplier, and the opposite direction of the same marginal savings tendency.