Glamor Economics

Chapter 89

Chapter 12 Section 7 Why Repairing Glass Promotes Economic Development—Multiplier Effect

After a storm, the windows of a department store shattered.The department store took out 5000 yuan to repair the glass.After the decoration company reinstalled the glass, it got 5000 yuan, took out 4000 yuan to buy a computer for the company, and deposited the remaining 1000 yuan in the bank as working capital.The computer company sold the computer and got 4000 yuan, bought a motorcycle with 3200 yuan, and deposited the remaining 800 yuan in the bank.After the owner of the motorcycle shop got 3200 yuan, he bought a set of fashion with 2650 yuan and deposited 640 yuan in the bank.In the end, the sum of the income received by each company far exceeds the figure of 5000 yuan.

The series of investment increases triggered by department store window glass is the multiplier effect.In economics, the multiplier effect is more completely the expenditure/income multiplier effect, which means that a change in a variable causes an increase in the final amount in the form of a multiplier acceleration.In macroeconomics, it refers to the disproportionate change in total economic demand caused by changes in expenditure, which means that a series of chain reactions caused by the increase in initial investment will bring about a multiple increase in national income.The so-called multiplier refers to such a coefficient, which can be multiplied by the change in investment to obtain the change in national income caused by the change in investment.Assuming that investment increases by 100 billion yuan, if this increase leads to an increase of 300 billion yuan in national income, then the multiplier is 3, and if the resulting increase in national income is 400 billion yuan, then the multiplier is 4.

Why is the multiplier greater than 1?For example, a government increases 100 billion yuan to purchase investment goods, and the 100 billion yuan is transformed into wages, interest, profits, and rents, and flows into the pockets of all the owners of production factors that manufacture the investment goods. Therefore, the investment increases by 100 100 million yuan, the first round will increase national income by 1 billion yuan.As people who get these capitals start the second round of investment and the third round of investment, the economic growth will increase with a multiplier greater than [-].

"Multiplier effect" is also called "Keynesian multiplier". In fact, before Keynes, someone had proposed the idea and concept of the multiplier principle, but Keynes further improved this theory.Keynes' multiplier theory pointed out the direction for western countries to come out of the Great Depression. Some people even compared it with Einstein's theory of relativity, and believed that the two greatest formulas in the 20th century were the basic formula of Einstein's theory of relativity and Keynes' multiplication factor. Fundamental formulas of number theory.

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The multiplier effect of supporting measures includes a series of measures. Only when these corresponding supporting measures are effective can the multiplier effect be effective.The so-called supporting measures refer to the combination of measures that make the initial measures more effective, such as incentive measures in management. Sometimes it is difficult to achieve a multiplier effect with simple incentives. At this time, it is necessary to have corresponding supporting measures such as corporate culture. Yes, the multiplier effect can only be achieved if these corresponding measures are taken well.

(End of this chapter)