Multiplier

The Multiplier

The multiplier

Introduction

A simplified circular flow of income model

A simplified circular flow of income model

Cd

A simplified circular flow of income model

Incomes

Cd

A simplified circular flow of income model

Incomes

Cd

W=S+T+M

A simplified circular flow of income model

J=I+G+X

Incomes

Cd

W=S+T+M

The multiplier

The withdrawals and injections approach

W, J

The multiplier: (a) a shift in injections

W a O

Ye1

J1 Y

W, J

The multiplier: (a) a shift in injections

b a O

Ye1

W J2 J1

Ye2

Y

The multiplier: (a) a shift in injections

W, J

Multiplier = ∆Y / ∆ J = ∆Y / ∆W = c− a / b− c

J2 J1 O

W

b ∆J

∆W

a

Ye1

∆Y

J2

c

J1

Ye2

Y

The multiplier: (a) a shift in injections

W, J

Multiplier = ∆Y / ∆ J = ∆Y / ∆W = c− a / b− c = 1/mpw

J2 J1 O

W

b ∆J

∆W

a

Ye1

∆Y

J2

c

J1

Ye2

Y

W, J

The multiplier: (b) a shift in withdrawals

W1 a O

Ye1

J Y

W, J

The multiplier: (b) a shift in withdrawals

W1 W2

O

a

c

Ye1

Ye2

J Y

W, J

The multiplier: (b) a shift in withdrawals

Multiplier = ∆Y / ∆W = c −a / a − b

W1 W2 a

c

∆W b O

Ye1

∆Y

Ye2

J Y

The multiplier

The income and expenditure approach

The multiplier: a shift in the expenditure curve

E, W, J

Y E1

O

Ye1

Y

The multiplier: a shift in the expenditure curve

E, W, J

Y

E2 E1

O

Ye1

Ye2

Y

The multiplier: a shift in the expenditure curve

E, W, J

Y

Multiplier = ∆Y / ∆ J = c− a / b− a

E2 E1

c ∆Y b ∆J a

O

Ye1

Ye2

Y

The multiplier

The multiplier and AD / AS analysis

Showing the multiplier effect on the 45o line and AD/AS diagrams

Y

Cd, W, J

E1

O

Y

Y

Showing the multiplier effect on the 45o line and AD/AS diagrams P

AS

AD1

O

Y Y

Cd, W, J

E1

O

Y

Y

Showing the multiplier effect on the 45o line and AD/AS diagrams P

AS

AD1

O

Y Y

Cd, W, J

E2 E1

O

Y

Y

Y

Showing the multiplier effect on the 45o line and AD/AS diagrams P

AS

AD1

O

AD2 Y

Cd, W, J

Y

E2 E1

O

Y

Y

Y