Peter Gitundu Creates Interesting And Thought Provoking Content On Mutual Funds. Read More Of His Articles Here KEYNESIAN MULTIPLIER
The Keynesian multiplier is a concept that refers to a factor that is used to determine how much a dependent variable changes in response to change in an independent variable. These are known as the endogenous and exogenous factors respectively. The Keynesian multiplier is common in economic disciplines. To elaborate a little bit more, suppose we have a variable element A, which changes by N units when element B changes, the multiplier is N in this case.
The Keynesian multiplier is mostly discussed in macro-economics especially in monetary aspects. It is referred to as the money multiplier and is used to determine how changes in the monetary base in any given economy cause change in the money supply systems. The money multiplier varies across nations and it also depends on the amount of money that is being referenced.
Another multiplier that is used in macro-economics in relation to money is the fiscal multiplier. This is the multiplier that is used to determine the effects of changes in revenue and expenditure on the aggregate output. Fiscal multipliers come in many types, depending on the measure of change that is being talked about. In general, the Keynesian multiplier is used to measure the effect on demand, as a result of change in income or expenditure.
The Keynesian multiplier theory was developed by John Maynard Keynes in the year 1936. His aim was to establish a relationship between employment, interest and money, in relation to recession. However, his theory, unlike what many people believe, seemed to emphasize more on the causes of economic disturbance, which he believed were market for good and services, as opposed to monetary and financial factors. However, this cannot change the fact that the Keynesian multiplier has gone a long way in helping economists predict future economic conditions.
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