The Multiplier

[Henry Hawthorne]

Hi there,

Quick Q on the multiplier...

If there is an investment of $50 000, and the multiplier value is 4, will the national income increase by $200 000 (4*50000) or $150 000 ((4*50000)-original 50000 invesment)?

Because I'm looking through my text book and it's giving two conflicting answers.

Thanks

[ZondaMan]

Henry Hawthorne said:

Hi there,

Quick Q on the multiplier...

If there is an investment of $50 000, and the multiplier value is 4, will the national income increase by $200 000 (4*50000) or $150 000 ((4*50000)-original 50000 invesment)?

Because I'm looking through my text book and it's giving two conflicting answers.

Thanks

200k, as the 50k investment also adds to national income, so represents an increase itself.

ETA: Ceteris paribus, of course.

Edited by ZondaMan on Tuesday 7th April 22:49

[Henry Hawthorne]

Okay thanks.

[ZondaMan]

No problem. Think that's right.

[Somewhatfoolish]

ZondaMan said:

Ceteris paribus, of course.

When anyone says this, punch them

[ZondaMan]

Somewhatfoolish said:

ZondaMan said:

Ceteris paribus, of course.

When anyone says this, punch them

Yeh, I know, but examiners love it. Chances are, if you add this in an Economics exam, you'll get marked for it.