What are the Types of Multipliers in Economics?
By BYJU'S Exam Prep
Updated on: September 13th, 2023
The Types of Multipliers in Economics are fiscal multipliers, Keynesian multipliers, employment multipliers, consumer multipliers, and others. After full employment, the multiplier only begins to work in relation to prices. Since shortages of components, goods, and services occur when the economy reaches its maximum employment level, it is aptly called the “price multiplier.”
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Types of Multipliers in Economics
A multiplier is a proportionality factor used in macroeconomics to quantify how much endogenous variable changes in response to an alteration in an exogenous variable. The specific characteristics of the various types of multipliers in economics have been discussed below.
Employment multiplier
Prof. RF Kahn’s name is connected to the employment multiplier. Professor Kahn first discussed the multiplier in 1931 when talking about the advantages of public investment on overall employment.
- According to Prof. Kahn, an initial increase in employment results in a reasonably significant increase in overall employment.
- All studies of public works demonstrate that there will be “secondary” employment resulting from public works in addition to the “original ” or “primary” job in public works.
- In the consumer goods sector, secondary employment is that which develops as a result of primary jobs in the public sector.
Price Multiplier
The investment or pension multiplier only works if full employment is not achieved. In other words, it has an entire employment ceiling.
- When the ceiling of full employment is reached in an economy, shortages of factors, goods, and services begin to appear.
- As such, the multiplier after full employment begins to function only about prices and is rightly referred to as the “price multiplier.”
Consumption multiplier
The concept of “savings potential,” as developed by Professor R. Nurkse in his well-known book “Capital Formation in Underdeveloped Countries,” is said to be the foundation of the consumption multiplier.
They contend that we must make use of the potential of saving, subsistence, and the unorganized economy if we are to truly break the cycle of poverty and begin an economic growth process.
Summary:
What are the Types of Multipliers in Economics?
In economics, there are various types of multipliers, including fiscal multipliers, Keynesian multipliers, consumption multipliers, employment multipliers, and others. The multiplier is appropriately referred to as the “price multiplier” once it begins to operate exclusively in relation to prices after full employment.
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