Explain The Concept Of Multiplier And Its Role In The Theory Of Employment. Also Describe The Limitations And Leakages Of Multiplier?


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The concept of multiplier is very interesting and it says that a change in the consumption of an autonomous also results in the multiple change in the equilibrium. How it relates with the employment can be explained by the following example. Let a hat maker spends this $70 dollars on a shirt. That will increase the income of the shirt seller by $70. Now the shirt seller will spend 0.7*70 on additional consumption like on a $49 hat. Which increases the hats maker's income by $49, and the cycle will continue. So the chances of employment increases. There are a number of limitations of this theory and click on the link to know more...
Concept Of Multiplier

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