In the current market of globalization and privatization it is not uncommon to witness firms trying to bring about increase in their investments. This investment can be in the form of an attempt to expand. In an attempt to expand they have to keep in mind the extent to which this expansion takes place. Answering the question of how much expansion will be good for the business is difficult. The way in which you can figure out this answer is by calculating the size of the multiplier. The extent to which a variation occurs in the autonomous expense is multiplied by the change in the expense of equilibrium which is created is the multiplier.
The value of the multiplier can be detected by a simple calculation. The sum of the amount of change in equilibrium expense when divided by the autonomous expense will produce the value of multiplier.
Taking an example if in the figure the value of equilibrium is initially taken to be $18 trillion and the autonomous expense is taken to be $0.5 trillion then as per the calculations the value of equilibrium expense becomes $20 trillion. Hence if the rise of the equilibrium amount is $2 trillion and it is divided by the autonomous amount ($0.5 trillion) then multiplier is 4.
Links of Previous Main Topic:-
Links of Next Macroeconomics Topics:-