The multiplier effect in the simple Keynesian model: A change in investment spending

Demonstrate the multiplier in the simple Keynesian model through a change in invesment spending

Category:

Education

Tags:

• economics
• multiplier
• investment
• spending
• savings
• Keynesian
• model
• goods
• market

[lostmy1]

Hayek has it against the use of government spending to increase the level of output.

[liquidribs]

hey what video was before this video?? as you were saying "we now explored etc etc at 0:16"

[lostmy1]

@liquidribs It has to do with the determination of the equilibrium income level in the Keynesian model. But I have not uploaded it yet.

[polarspirit]

I finally fucking understand. Fuck my lecturer. Thank you, my friend, for posting this up. I was confused about the magic of multiplier effect.

[HolyGaia]

@jackie8mccall I'm not sure I get what you're saying.

The version of the model shown in the video does not include a Central Bank and a financial system, even so... The multiplier is akin to the velocity of money. There is the same amount of money in the system in the end as in the beginning, but it circulates faster. You can see that in video: every time an arrow shows up, it indicates the velocity of money is increasing.

[Andersll11]

Man, do I love Hayek!

[lostmy1]

@longhornssb If the government finance the $100 through taxation then the taxation is the leakage. If the government finance it by borrowing from savings by households there is no leakage. Repaying the household at the end of the year by decreasing its spending by 100 will cause a lower stimulus (not a leakage). Or it can borrow the money again.

In a recession with excess capacity you will not experience diminishing returns. Once full employment is reached there is no multiplier.

[longhornssb]

@lostmy1 Why would the multiplier effect not be affected by inflation? In terms of dollars I understand, but the amount of additional productivity has to be diminished each cycle right?

Also regarding the initial investment, I guess I wasn't clear. Let's say that the gov't made the initial $100 investment. Then at some point (unless the gov't doesn't plan on repaying its debt) the $100 will have to be leaked out of the economy right?

[jackie8mccall]

@HolyGaia I am saying the people that are lending the money. Where are they getting it from? The government is promising to pay + interest (credit) and the people lending the money are promising to pay.

[HolyGaia]

@lostmy1 True. If there isn't increase in demand, there isn't an incentive to increase output.

[lostmy1]

@HolyGaia Businesses will only be willing to prodcue goods if someone is willing ot buy these goods. If the demand for goods is less than produdction while businesses increase production?