Saturday, August 22, 2009

Importance of Multiplier

Keynes multiplier is looked upon as an important contribution to economic thought. It is not only a theoretical concept but also an important instrument of economic prices. It has emerged as an important theoretical concept because it ahs focused attention on investment as the major dynamic element in the economy of a country. It has also strengthened the case for public investment, particularly at a time of depression and unemployment, because even small increment in public investment at such a time leads to large increment in income, output and employment. The concept of the multiplier also helped the government in formulating an appropriate employment policy during depression. It has not only inflicted that employment was directly created by investment but also revealed that income was generated through out the economic system like a stone causing ripples in a pond. Besides a knowledge of multiplier is of supreme importance not only in analysing the course of the business cycle but also in devising an anti-cyclical policy to smoothen business fluctuations in the working of economy. The concept of the multiplier has thus brought about a revolution not only in economic theorizing but also in policy making at a state-level.

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