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In real life, the operation of simple multiplier is affected by many leakages. Leakages in the multiplier arise out of the following reasons:(1) Saving: If all the income is spent on consumption, then every increase in investment will raise the level of income. But, if a large proportion of the income is kept as saving, it will certainly have different effect on the intensity of multiplier.(2) Debt Cancellation: If the people use a large proportion of their income in debt repayment, they will have smaller amount of income left for consumption. As a result, marginal propensity to consume falls and the value of multiplier also goes down.(3) Imports: If the imports of a country exceed its exports a large portion of the national income will go to foreigners. Consequently, the multiplier effect of this expenditure is transmitted abroad. In such a situation, any increase in the investment will not increase the level of income in the economy.(4) Price Inflation: When the economic reaches the full employment level or very close to it, every increase in investment will bring about a simultaneous increase in the price level. A large portion of incremental income will be spent in buying costly things; therefore, the intensity of multiplier becomes weak.(5) Liquidity preference: People keep a part of their money income in liquid form. Liquidity preference reduces the present level of consumption of the community; as a result, the multiplier loses its strength.
Explain the trade-off between equity and efficiency. Identify how individuals and organizations are likely to change their behavior as a result of government actions.
Consider the following homogenous difference equation: xt=b0+b1xt-1 a) Iterate backwards xt can be written in terms of xt-2. b) Now show xt can be written in terms of xt-3 a
Aggregate Demand Policies Both fiscal and monetary policy changes shift the AD curve. Let us see how, starting with a fiscal expansion. See figure 6.2. In the upper panel, the
Q. Production function and Growth? From the simple production function Y = f(L, K), we can classify three sources of growth: An increase in L. An increase in K.
the suitability of utilising a policy of tariffs and quotas given the case of perfect competition.
HOW MARRIAGE AFFECTS GDP
A clinic uses doctors and nurses optimally and is servicing the maximum number of patients given a limited annual payroll. The last doctor hired treated 1,600 extra patients in a y
briefly explain any five uses of national income statistics
What are the best criteria to select peers for a country ?
An online stock trading company makes part of their revenue from clients when the clients trade stocks therefore, it is important to the company to have an good idea of how many tr
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