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Multiplier

Multiplier. Multiplier. Y. 45 0. C + I + I”. C + I. C. Aggregate Demand. O. X. National Income. Multiplier. Increase in aggregate demand will increase the equilibrium level of national income and decrease in aggregate demand decreases the equilibrium level of income

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Multiplier

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  1. Multiplier

  2. Multiplier Y 450 C + I + I” C + I C Aggregate Demand O X National Income

  3. Multiplier • Increase in aggregate demand will increase the equilibrium level of national income and decrease in aggregate demand decreases the equilibrium level of income • Is there any specific relationship between the changes in aggregate demand and the change in national income? • If yes, what determines this relationship? • Answers to these questions lies in multiplier theory

  4. MPC and Multiplier MPC Multiplier 0.00 1.00 0.10 1.11 0.50 2.00 0.75 4.00 0.80 5.00 0.90 10.00 1.00 Infinity

  5. The Use of Multiplier • Used in economic planning and projections and assessment of possible effects of the changes in government policy • Assessment of overall possible increase in the national income due to one-shot increase in investment or due to single injection investments • Plan economic growth of the country Planned growth Rs. 100 Billion Multiplier = 5 Investment requirement = Rs. 20 Billion

  6. Limitations of Multiplier A . Leakages 1. payment of the past debts 2. Purchase on existing wealth 3. Imports of goods and services B. Non-availability of consumer goods and services C. Full employment situation

  7. Multipliers

  8. Multipliers

  9. National Income Determination With Government Spending and Tax

  10. National Income Determination With Transfer payments

  11. National Income Determination With Tax as a Function of Income

  12. National Income Determination With Only Exports

  13. Import Function

  14. National Income Determination in Four Sector Model

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