:''This article deals with the concept in economics. For the multiplication of complex numbers, see
Complex number#Multiplication.''
The complex multiplier is the
multiplier principle in
Keynesian economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...
(formulated by
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
). The simplistic multiplier that is the reciprocal of the
marginal propensity to save
The marginal propensity to save (MPS) is the fraction of an increase in income that is not spent and instead used for saving. It is the slope of the line plotting saving against income. For example, if a household earns one extra dollar, and the ...
is a special case used for illustrative purposes only. The multiplier applies to any change in
autonomous expenditure, in other words, an externally induced change in
consumption
Consumption may refer to:
*Resource consumption
*Tuberculosis, an infectious disease, historically
* Consumption (ecology), receipt of energy by consuming other organisms
* Consumption (economics), the purchasing of newly produced goods for curren ...
, investment, government expenditure or
net exports
The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
. Each of these operates to increase or reduce the
equilibrium level of income in the economy.
* any increase to an injection will be multiplied to result in a higher level of
aggregate expenditure
In economics, aggregate expenditure (AE) is a measure of national income. Aggregate expenditure is defined as the current value of all the finished goods and services in the economy. The aggregate expenditure is thus the sum total of all the expen ...
.
* Any decrease in an injection will be multiplied to result in a lower level of aggregate expenditure.
* Any increase in a withdrawal will be multiplied to result in a lower level of aggregate expenditure.
and...
*Any decrease in a withdrawal will be multiplied to result in a higher level of aggregate expenditure.
The size of the multiplier should take account of all
leakages from the
circular flow of income and expenditure
Circular may refer to:
* The shape of a circle
* ''Circular'' (album), a 2006 album by Spanish singer Vega
* Circular letter (disambiguation)
** Flyer (pamphlet), a form of advertisement
* Circular reasoning, a type of logical fallacy
* Circula ...
occurring in all sectors. The complex multiplier can be measured by the following formula:
:
where MPS= Marginal propensity to save,
MRT= Marginal rate of taxation,
MPM= marginal propensity to import.
MPW = Marginal propensity to withdraw
See also
*
Fiscal multiplier
*
Transfer payments multiplier
Notes
References
*{{cite book , last=Parry , first=Greg , last2=Kemp , first2=Steven , year=2005 , title=Exploring Macroeconomics , edition=7th , publisher=Tactic Publications , location=South Perth, WA , isbn=1-875313-23-0
Keynesian economics
Economics effects