Paradox of Thrift (Saving is a vice not virtue)

The classical economists considered saving to be a great virtue. They encouraged hard-work, maximum earning and minimum spending on consumption. They advised people to accumulate for future by maximizing earning and minimizing expenditure on consumption. Thinking aggregate savings as simply and aggregation of savings by individual members of the Community, they come to the conclusion […]

Concept of multiplier

The concept of multiplier was first developed by R.F. Kahn in his article “The Relation of Home Investment to unemployment” in the Economic Journal of June 1931. Kahn’s multiplier was the employment multiplier. Keynes took the idea from Kahn and formulated the Investment multiplier. So, the concept of multiplier is regarded as one of the […]

Importance or Uses of Multiplier

            The introduction of multiplier analysis in income theory is regarded as one of path-breaking contributions of Keynes to the economic theory. It is not merely theoretical concept, but also important instrument of economic policy. The importance of multiplier can be explained as follows: (1)  Importance in Investment:             The concept of multiplier established the […]

Leakages of multiplier

In common practice, working of the multiplier is affected by a larger number of dynamic factors which work over time. Multiplier not goes on raising income indefinitely. This is because of there are several leakages from the income-stream as a result of which the process of income propagation is slowed down as time passes. All […]

Assumptions of multiplier

Keynes’ theory of the multiplier works under certain assumptions which limit the operation of the multiplier. They are as follows: (i)     The marginal propensity to consume is constant. (ii)    There is a closed economy unaffected by foreign influences. (iii)   Consumption is a function of current income. (iv)    There are no time lags in the multiplier […]