What his thing is telling you is that in a world where we have excess capacity - that is factories are not producing at full capacity - an increase in demand will cause an increase in production and an increase in production causes an increase in spending which causes a further increase in production. Hence a multiplier effect. There is no need for a mathematical formula.
This is the magic of the multiplier. If you built a factory for 80 then demand and output increases with 80. An increase in production of 80 leads to an increase in income of 80 of which households then spend 64. Demand increase then increases with 64 and so does produciton and income and the cycle continues. Moving 10 dollars from from your left pocket to the right will not increase it to 11 but spending it will increase production in the eoncomy with more than 10 dollars.
I been struggling with econ since day 1 & I need to pass these 3 last test to pass the class /: but this video explains it so well! Thank you so much!!
Oh, and let me argue the FACT that unless you have money hidden in coffee cans, when you save it, it is actually investing it. That is right, when you put your cash in the bank, you are investing that money. The bank uses (or it should use that money in a non- federal reserve / fdic world) your money to make loans to others to grow businesses or buy homes while you and the bank (that is before the interest tanked due to fed policy) earned a profit that could be saved and reinvested or spent.
2 mins. into this video and I already see a HUGE error. The video says if a business invests 100M into a new building, then those who are on the receiving end will have their income increase by 100M. Then they will spend that 100M or save it. One big thing left out which is were the error comes in THE COST OF GOOD SOLD. The 100M is not direct income for the worker, the material provider, etc. they all have costs for the investment, thus the real income is must less than the initial investment.
I am saying a shoe producer X has current production capacity of 100,000 pairs a month and additional investment increases capacity to 200,000/month. The investment for construction enters household income and various bleeds off the additional income take place leaving only a small part left as additional disposable income. The shoe producer does not assume that 100% of additional spendable income will come his way. (cont)
jackie8mccall Look, before you say something you positive is a fundamental flaw, that one has bothered to raise over the past 80 years, think again. I've heard that point before and my original reply was «We aren't starting anything. This is the 21st century.» But to answer your question, in this case businesses lead the surge, so they can either use their savings or access credit.
Education is the key to this rather than half-formed opinions. I guess these folks are saying they are more qualified in their ten minute youtube assertions than the folks that go to Harvard and receive the specialize knowledge required- I wonder how much time they have spent researching macro-economics, pricing, the business cycle and the like, and to have an opinon after only listening to 10 minutes to a video on youtube kind of shows you the level of intelligence we are NOT dealing with here.
@AlexMerced ...that's what it is. As for the Say's law paraphrase, "who would of demanded" - A few things 1) I think the idea that something "new" is created is false. Theodor Adorno has talked alot about the "culture industry" and how it pretends to create "new" things when it really simply rehashes old "concepts" or formulas. The people who thought up the Ipad were consumers themselves - perhaps they demanded to see such a commodity. Even more so, Apple knows people already like computers...
@AlexMerced The assumption isn't false - its only in classical and neo-classical market theories and models that Savings are automatically reinvested by banks. But like you have said, banks are "playing it safe" - more like smart. Waiting for deflation with all that money is just an easy way of making money. The whole problem, really a side effect of Capitalism, is that the cycle of leakages and investments must continue to run like an engine - this isnt what I would like to live under but...
@AlexMerced ...it also may lead to a whole new economic environment and change the subjective conditions of investors. It was never implied that savings don't get re-invested (or atleast this video shouldnt say so) but that there can be time periods (i.e last 3 years) when people don't invest because they don't think they are going to get anything back. Banks have been sitting on the money that the FED tried to inject (probably to wait for prices to drop) Its not false...
@AlexMerced the continous spiral downards. Yes, it is true that if demand for money is insensitive, the rise in interest rates CAN "crowd out" investment and change the composition of the economy (more reliant on gov spending). However, we should beware of the "Economics in One Lesson," ch 2, explanation of Keynesian spending as simply moving money around the economy (Broken Window). The problem with that is that G spending can "crowd in" just as much or accelerate investment...cont
@AlexMerced I'm not seeing how this model implies that and if it does, it shouldn't as Keynes was a proponent of absolute income hypothesis (people entering into contracts leads to stickiness in Aggregate demand, i.e). Keynes also doesnt ignore taxation as a leakage or that savings will be reinvested - hence the "in the long run we are all dead." The point is to prevent the basically infinite spiral downards, as deflation has the ability of delaying reactions, which hurts the economy, and thus..
@AlexMerced I 100% agree with you on the point that I think GDP can be a worthless determinent of quality of life. Perhaps it might seem contradictory for me to say this because of what I wrote 2 months ago but I was responding to the other person's comments. But For example, to quote Louis CK, we could just start opening up more and more "Shitasspetfuckers" stores and hire people - ultimately money will be turnover but does having such a store benefit society? As for your suggesting...cont
@GrandArchitect3D where and when have we seen it not work? See when people just make broad strokes like this, they come across as ignorant. Has the "stimulus" in the US in the last two years worked? Perhaps not. But what about Australia 2 years ago? Oh ya, they went from .8% negative growth to .4% growth in about 4 months. And we have seen the multiplier work, it just works to different degrees depending on what its being used for (i,e food stamps are extremely effective).
Your usw ofd the circular model is flawed. On the household side you refer to savings as leakage but leave out all outher leakage like about 30% for taxes. Then at the Firm side you again leave out taxes. You also ASSUME that firms ramp up production due to additional consumption. NO firm any where ramps up pruduction like you describe.
this model is flawed because it doesnt consider the fractional reserve lending allowing leverage/debt creation, so when population start becoming savers compared to consumers money contraction occurs eliminating debt from the circulation and bubbles occur, to a complete slowdown. Research austrian economics. Regards AC
@GrandArchitect3D The word theory is actually much more powerful than your preconceived notion that a theory is negligible observation. In fact, a theory is a series of observable facts proposed together to create a larger hypothetical factual event. Thus a theory is actually an inductively proposed component of evidence.
@spinner883 i would also question people's belief in the Federal recovery act of 2009 being any sort of proper stimulus, considering about only 1/3 was actual direct government spending ( others being state bailouts and tax cuts) and even then, more should of been done. o well fuck it. now we are going to have massive austerity measures and turn into estonia
Investment spending is an oxymoron. It's like saying "Saving spending." Investments make you money, while liabilities take money. This is based on an assumption that all "Investment spending" creates money. What if the investment goes south? Then it becomes a liability, where is the multiplier in that?
@FREESOULIA Yeah, Keynesians do not take into account how wealth is created. Not from government spending but from individuals in transactions. Transactions do not take place unless both parties feel better off.
@spinner883 Thus, no 100% tax. Plus, there are multiple variables in determing tax rates. Even if the multiplier effect is true, people's personal bias and beliefs come into play when determing tax code. the end
@HolyGaia I am saying the people that are lending the money. Where are they getting it from? The government is promising to pay + interest (credit) and the people lending the money are promising to pay.
This system is flawed for one reason. It can only start if money is injected into the system. Where did this money that is being injected into the system come from?
@peace33783 Wrong. Wrong on Austrian econ and wrong about the multiplier. Look up the marginal propensity to consume, it's the foundation of this model.
@perfectfailure23 Maybe it is because people want IPones and have the means and willingness to purchase it that it is produced. So spending drives producion. And it is the invevstment that creates the savings. If people save and do not spend produciton will suffer. There is no reason to think that just because peole save more that businesses will invest more. The decision to save and the decision to invest are two seperate things.
In this Keynesian world you have resources that are idle - they are not being used. By increasing spending producers will react by increasing production to meet the higher demand. As production increase income increase and the multiplier is in opration. So by increasing money you are increasing the use of resources.
@longhornssb If the government finance the $100 through taxation then the taxation is the leakage. If the government finance it by borrowing from savings by households there is no leakage. Repaying the household at the end of the year by decreasing its spending by 100 will cause a lower stimulus (not a leakage). Or it can borrow the money again. In a recession with excess capacity you will not experience diminishing returns. Once full employment is reached there is no multiplier.
Adding taxes will decrease the value of the multiplier as it decreases spending by households. Imports also decrease the value of the multiplier as it spending on goods not produced domestically. As long as there capacity to produce the multiplier will work regardless of inflation. Interest paid by one person is income for another person. As long as it does not leak out of the system the multiplier is unaffected.
@longhornssb Adding taxes will decrease the value of the multiplier as it decreases spending by households. Imports also decrease the value of the multiplier as it spending on goods not produced domestically. As long as there is capacity to produce the multiplier will work regardless of inflation. Interest paid by one person is income for another person. As long as it does not leak out of the system the multiplier is unaffected.
@HolyGaia Businesses will only be willing to prodcue goods if someone is willing ot buy these goods. If the demand for goods is less than produdction while businesses increase production?
No, the increase in tax revenue will be less than the increase in government spending. See the video on the Keynesian multiplier with taxes. If you use the values of c = 0.8 and t = 0.1 then the multiplier is 3.5. A 100 increase in government spending increases income with 357 and the tax revenue increases by 35.7 (10% of 357) and still leaves a deficit of 64.3..
See the next clips in the playlist for the impact of taxes. Are you saying a producers of shoes will not produce more shoes if housholds buy more shoes? Or Apple will not produce more IPads if the demand for it increases?
@HolyGaia Indeed, In this example the geometric series is: 100 + (0.8 x 100) + 0.8 x (0.8 x 100) + 0.8 x (0.8 x 0.8 x 100) + ... And the general formula for the sum of this geometric series is: 1/1-0.8 = 5 which is the multiplier.
Assuming the investment is one time not a constant flow of money, all of these are one time transactions and this model ignored the way people switched jobs to create this increase in building projects and production and what happens to them once the diminishing returns run out, oh yeah, high unemployment then recession due to decreased future spending of those who are now looking for work, well done, you've explained how government spending causes a recession.
Governments tax savings.....the more you save the more the tax....does the Gov tax the bank on our savings and banks charged us with all kinds of fees to make up for that tax deducted?..although the bank rewards us with interests on our savings and using our savings for investment..with investments there is always tax riding up behind.
It is a model. It simplifies reality. And the point of the video is to give a glimpse of how things work. But the mistake is nowhere huge. Those 100M do find their way to be spent and saved, all of it. Let it be through the hands of the workers, the material provider, etc.
@AlexMerced We should not just look at something as pure quantity (tax 100 from one person and give 100 another) but also its qualitative impacts. For example, if I raise water by 5 C degrees and it is only 55 degrees C at the start, it will only get warmer. But if I raise water temp by 5 C degrees and it is at 95 degrees, it can change the whole molecular structure of the mass and transform it into vapor. Thus, a little boost in Gdp might be totally useless and perhaps negative but....
@AlexMerced and blackberry's and other devices that have been combined into one product. Finally, I read some of your blog. Very interesting - I applaud you for having your own philosophy. I think you would perhaps be suprised by certain historical figures who are considered the opposite of the Mises crowd who would actually agree with you.
(cont) Demand in infinantly elastic. You can not assume that any money will find it's way back the the shoe maker. This extra capacity may only be needed to may only be needed seasonally.
I love how this works in a world where scarcity does not mean anything and that income will keep growing. Well if income keeps growing then the more money you make the less it is worth. As we see in the graph it must spending and production must keep going up in order to maintain equilibrium. As spending and production goes up so does inflation. This must keep going on perpetually. Until we hyper-inflate the currency or our means of income. Leading to collapse of the whole economic system.
@jackie8mccall I'm not sure I get what you're saying. The version of the model shown in the video does not include a Central Bank and a financial system, even so... The multiplier is akin to the velocity of money. There is the same amount of money in the system in the end as in the beginning, but it circulates faster. You can see that in video: every time an arrow shows up, it indicates the velocity of money is increasing.
my previous comment on this video was merely a sarcastic one. But back to your reply.Increase of demand can be dealt by firms in 2 ways,either by increase in price(as you say inflation),or by increase of output.According to this video there would be no inflation,only the increase of production. This Keynesian multiplier effect is misleading and nothing bat a fallacy.
@AlexMerced cont of adoption of innovations amongst the poor. That is interesting factor that I have not considered and probably an increase in that rate would do much to lower the Gini. I was also wondering if something like a measurement of Underemployment (as opposed to unemployment) could more accurately measure a quality of life because it would give a rough estimate of worker's effort at their jobs (which could be used to modify possible productivity levels) and how much they value them
Here's the "mysterious multiplier" effect. 2=1+1, 2-1=1. Factor out 2 on the left: 2(1-0.5)=1. Create "multiplier": 2 = (1/(1-0.5))x1. Add 2 to both sides, ignoring math order of operations on the right: 2+2=(1/(1-0.5))x1+2, 4 = (1/(1-0.5))x3, 4 = 6. The "mysterious multiplier" illegally puts addition first in the math order of operations. That's how you get debt crises from Three Stooges Math :D
Your video shows Y = C + I. Y + 1 = C + I + 1. There's no multiplier effect there. How do you explain that?
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So quantitative easing assumes that an economy has a large store of savings. This would explain why growth has been so anemic despite the Federal Reserve injecting $1 Trillion per year into the economy. Lower interest rates encourage borrowing, but how can you borrow if your already tapped out? This also explains why QE encourages higher unemployment. The United States is heading back into a cyclical recession with already rock bottom interest rates; I don't see this ending well.
I don get it,what you're saying is that the AS curve shifts upward but in the illustration,it is in fact the AD curve shifting. Please review the simple graph that shows AS and AD intersecting and establish which is which
multiplier effect tells that saving is not good for market expansion or demand increment??? is this correct ??? becoz saving is also earlier or later is investment or spending.sounds oddd ??? help out
So if 20% is saved in banks, how does the banking system affect the economy? at the end all the money saved the banks will also keep 20% and lend the other 80%. So this creates another multiplier effect right? if you only count it without the banking system the 100M would end up being 500M but if you add all the money the bank is lending it is going to end up in even more. Am I right?
I suppose the multiplier is referring to the economy as a whole because the multiplier stems from the aggregate demand function. Aggregate Demand = C+I+G, and after all the math gymnastics, you'll get national income = autonomous function(multiplier).
Keynesian models here are very very simplified models - they don't take into account several factors such as depreciation, monetary policy, undistributed profits, etc. You'll find that it works differently when all of these are plugged in
There at least one obvious flaw in this theory. If 100% of all household income were spent and 0% saved, the theory says the "multiplier" would be infinite -- which is ridiculous. We cant spend ourselves rich, we have to save ourselves rich, or at least to try to. Savings are what allow businesses to invest in increased production in the future. Economic progress, meaning a higher standard of living, results from businesses finding ways to make more (or better) products while using the same amount of resources, or to make the current amount of product while using fewer resources. This is the only possible source of a "multiplier effect". And the more that is saved, the higher it will be.
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What his thing is telling you is that in a world where we have excess capacity - that is factories are not producing at full capacity - an increase in demand will cause an increase in production and an increase in production causes an increase in spending which causes a further increase in production. Hence a multiplier effect. There is no need for a mathematical formula.
I hate online class! This is torturously painful for dumb people like me! 😭😭
This is the magic of the multiplier. If you built a factory for 80 then demand and output increases with 80. An increase in production of 80 leads to an increase in income of 80 of which households then spend 64. Demand increase then increases with 64 and so does produciton and income and the cycle continues.
Moving 10 dollars from from your left pocket to the right will not increase it to 11 but spending it will increase production in the eoncomy with more than 10 dollars.
A very well-presented and catchy video! Thank you so much for helping me understand the concept of multiplier effect
Its not a level thing. It is an explanation of a basic concept. To understand complex things one must understand basic things.
I been struggling with econ since day 1 & I need to pass these 3 last test to pass the class /: but this video explains it so well! Thank you so much!!
Oh, and let me argue the FACT that unless you have money hidden in coffee cans, when you save it, it is actually investing it. That is right, when you put your cash in the bank, you are investing that money. The bank uses (or it should use that money in a non- federal reserve / fdic world) your money to make loans to others to grow businesses or buy homes while you and the bank (that is before the interest tanked due to fed policy) earned a profit that could be saved and reinvested or spent.
2 mins. into this video and I already see a HUGE error.
The video says if a business invests 100M into a new building, then those who are on the receiving end will have their income increase by 100M. Then they will spend that 100M or save it.
One big thing left out which is were the error comes in THE COST OF GOOD SOLD.
The 100M is not direct income for the worker, the material provider, etc. they all have costs for the investment, thus the real income is must less than the initial investment.
I am saying a shoe producer X has current production capacity of 100,000 pairs a month and additional investment increases capacity to 200,000/month. The investment for construction enters household income and various bleeds off the additional income take place leaving only a small part left as additional disposable income. The shoe producer does not assume that 100% of additional spendable income will come his way. (cont)
jackie8mccall Look, before you say something you positive is a fundamental flaw, that one has bothered to raise over the past 80 years, think again.
I've heard that point before and my original reply was «We aren't starting anything. This is the 21st century.» But to answer your question, in this case businesses lead the surge, so they can either use their savings or access credit.
Education is the key to this rather than half-formed opinions. I guess these folks are saying they are more qualified in their ten minute youtube assertions than the folks that go to Harvard and receive the specialize knowledge required- I wonder how much time they have spent researching macro-economics, pricing, the business cycle and the like, and to have an opinon after only listening to 10 minutes to a video on youtube kind of shows you the level of intelligence we are NOT dealing with here.
@AlexMerced ...that's what it is. As for the Say's law paraphrase, "who would of demanded" - A few things 1) I think the idea that something "new" is created is false. Theodor Adorno has talked alot about the "culture industry" and how it pretends to create "new" things when it really simply rehashes old "concepts" or formulas. The people who thought up the Ipad were consumers themselves - perhaps they demanded to see such a commodity. Even more so, Apple knows people already like computers...
@AlexMerced The assumption isn't false - its only in classical and neo-classical market theories and models that Savings are automatically reinvested by banks. But like you have said, banks are "playing it safe" - more like smart. Waiting for deflation with all that money is just an easy way of making money. The whole problem, really a side effect of Capitalism, is that the cycle of leakages and investments must continue to run like an engine - this isnt what I would like to live under but...
@AlexMerced ...it also may lead to a whole new economic environment and change the subjective conditions of investors. It was never implied that savings don't get re-invested (or atleast this video shouldnt say so) but that there can be time periods (i.e last 3 years) when people don't invest because they don't think they are going to get anything back. Banks have been sitting on the money that the FED tried to inject (probably to wait for prices to drop) Its not false...
@AlexMerced the continous spiral downards. Yes, it is true that if demand for money is insensitive, the rise in interest rates CAN "crowd out" investment and change the composition of the economy (more reliant on gov spending). However, we should beware of the "Economics in One Lesson," ch 2, explanation of Keynesian spending as simply moving money around the economy (Broken Window). The problem with that is that G spending can "crowd in" just as much or accelerate investment...cont
@AlexMerced I'm not seeing how this model implies that and if it does, it shouldn't as Keynes was a proponent of absolute income hypothesis (people entering into contracts leads to stickiness in Aggregate demand, i.e). Keynes also doesnt ignore taxation as a leakage or that savings will be reinvested - hence the "in the long run we are all dead." The point is to prevent the basically infinite spiral downards, as deflation has the ability of delaying reactions, which hurts the economy, and thus..
@AlexMerced I 100% agree with you on the point that I think GDP can be a worthless determinent of quality of life. Perhaps it might seem contradictory for me to say this because of what I wrote 2 months ago but I was responding to the other person's comments. But For example, to quote Louis CK, we could just start opening up more and more "Shitasspetfuckers" stores and hire people - ultimately money will be turnover but does having such a store benefit society? As for your suggesting...cont
@GrandArchitect3D
where and when have we seen it not work? See when people just make broad strokes like this, they come across as ignorant. Has the "stimulus" in the US in the last two years worked? Perhaps not. But what about Australia 2 years ago? Oh ya, they went from .8% negative growth to .4% growth in about 4 months. And we have seen the multiplier work, it just works to different degrees depending on what its being used for (i,e food stamps are extremely effective).
Your usw ofd the circular model is flawed. On the household side you refer to savings as leakage but leave out all outher leakage like about 30% for taxes. Then at the Firm side you again leave out taxes. You also ASSUME that firms ramp up production due to additional consumption. NO firm any where ramps up pruduction like you describe.
this model is flawed because it doesnt consider the fractional reserve lending allowing leverage/debt creation, so when population start becoming savers compared to consumers money contraction occurs eliminating debt from the circulation and bubbles occur, to a complete slowdown. Research austrian economics. Regards AC
@GrandArchitect3D The word theory is actually much more powerful than your preconceived notion that a theory is negligible observation. In fact, a theory is a series of observable facts proposed together to create a larger hypothetical factual event. Thus a theory is actually an inductively proposed component of evidence.
@spinner883
i would also question people's belief in the Federal recovery act of 2009 being any sort of proper stimulus, considering about only 1/3 was actual direct government spending ( others being state bailouts and tax cuts) and even then, more should of been done. o well fuck it. now we are going to have massive austerity measures and turn into estonia
Investment spending is an oxymoron. It's like saying "Saving spending." Investments make you money, while liabilities take money. This is based on an assumption that all "Investment spending" creates money. What if the investment goes south? Then it becomes a liability, where is the multiplier in that?
@FREESOULIA Yeah, Keynesians do not take into account how wealth is created. Not from government spending but from individuals in transactions. Transactions do not take place unless both parties feel better off.
@spinner883 Thus, no 100% tax.
Plus, there are multiple variables in determing tax rates. Even if the multiplier effect is true, people's personal bias and beliefs come into play when determing tax code. the end
@HolyGaia I am saying the people that are lending the money. Where are they getting it from? The government is promising to pay + interest (credit) and the people lending the money are promising to pay.
This system is flawed for one reason. It can only start if money is injected into the system. Where did this money that is being injected into the system come from?
@GrandArchitect3D
Diminishing returns. 2) once a market gets going, the point of stimulating aggregate demand, then the government can back away.
@peace33783 Wrong. Wrong on Austrian econ and wrong about the multiplier. Look up the marginal propensity to consume, it's the foundation of this model.
the only thing is that this is just a theory... in the real world, assumptions of this theory unfortunately do not hold most of the time
@perfectfailure23 Maybe it is because people want IPones and have the means and willingness to purchase it that it is produced. So spending drives producion. And it is the invevstment that creates the savings. If people save and do not spend produciton will suffer. There is no reason to think that just because peole save more that businesses will invest more. The decision to save and the decision to invest are two seperate things.
In this Keynesian world you have resources that are idle - they are not being used. By increasing spending producers will react by increasing production to meet the higher demand. As production increase income increase and the multiplier is in opration. So by increasing money you are increasing the use of resources.
@longhornssb If the government finance the $100 through taxation then the taxation is the leakage. If the government finance it by borrowing from savings by households there is no leakage. Repaying the household at the end of the year by decreasing its spending by 100 will cause a lower stimulus (not a leakage). Or it can borrow the money again.
In a recession with excess capacity you will not experience diminishing returns. Once full employment is reached there is no multiplier.
Adding taxes will decrease the value of the multiplier as it decreases spending by households. Imports also decrease the value of the multiplier as it spending on goods not produced domestically. As long as there capacity to produce the multiplier will work regardless of inflation. Interest paid by one person is income for another person. As long as it does not leak out of the system the multiplier is unaffected.
notice how the 100 million round just came from thin air and mysteriously equaled the amount of savings in the economy.
(scratches head).
*sarcasm*
@longhornssb Adding taxes will decrease the value of the multiplier as it decreases spending by households. Imports also decrease the value of the multiplier as it spending on goods not produced domestically. As long as there is capacity to produce the multiplier will work regardless of inflation. Interest paid by one person is income for another person. As long as it does not leak out of the system the multiplier is unaffected.
@FREESOULIA I think you need to watch the video again, you are obviously lost.
STOP THE PRESSES! Warn the people! Warn the government! We are living a lie!
@HolyGaia Businesses will only be willing to prodcue goods if someone is willing ot buy these goods. If the demand for goods is less than produdction while businesses increase production?
What is the source of this video?
Spending is injected into the system and that spending is the money. The money is supplied by the central bank.
No, the increase in tax revenue will be less than the increase in government spending.
See the video on the Keynesian multiplier with taxes. If you use the values of c = 0.8 and t = 0.1 then the multiplier is 3.5. A 100 increase in government spending increases income with 357 and the tax revenue increases by 35.7 (10% of 357) and still leaves a deficit of 64.3..
See the next clips in the playlist for the impact of taxes.
Are you saying a producers of shoes will not produce more shoes if housholds buy more shoes? Or Apple will not produce more IPads if the demand for it increases?
I'm not able to understand economy. Nothing makes sense to me.
Yes part of it. As production and income increases then more taxes are collected and the reveu of government increases.
@HolyGaia Indeed, In this example the geometric series is:
100 + (0.8 x 100) + 0.8 x (0.8 x 100) + 0.8 x (0.8 x 0.8 x 100) + ...
And the general formula for the sum of this geometric series is: 1/1-0.8 = 5 which is the multiplier.
Impeccable sir
My new guru ji 🙏
@liquidribs It has to do with the determination of the equilibrium income level in the Keynesian model. But I have not uploaded it yet.
Assuming the investment is one time not a constant flow of money, all of these are one time transactions and this model ignored the way people switched jobs to create this increase in building projects and production and what happens to them once the diminishing returns run out, oh yeah, high unemployment then recession due to decreased future spending of those who are now looking for work, well done, you've explained how government spending causes a recession.
this crap is still being taught? Oh, brother.
Governments tax savings.....the more you save the more the tax....does the Gov tax the bank on our savings and banks charged us with all kinds of fees to make up for that tax deducted?..although the bank rewards us with interests on our savings and using our savings for investment..with investments there is always tax riding up behind.
keep in mind MPC is not a fixed amount
It is a model. It simplifies reality. And the point of the video is to give a glimpse of how things work. But the mistake is nowhere huge. Those 100M do find their way to be spent and saved, all of it. Let it be through the hands of the workers, the material provider, etc.
@AlexMerced We should not just look at something as pure quantity (tax 100 from one person and give 100 another) but also its qualitative impacts. For example, if I raise water by 5 C degrees and it is only 55 degrees C at the start, it will only get warmer. But if I raise water temp by 5 C degrees and it is at 95 degrees, it can change the whole molecular structure of the mass and transform it into vapor. Thus, a little boost in Gdp might be totally useless and perhaps negative but....
@AlexMerced and blackberry's and other devices that have been combined into one product.
Finally, I read some of your blog. Very interesting - I applaud you for having your own philosophy. I think you would perhaps be suprised by certain historical figures who are considered the opposite of the Mises crowd who would actually agree with you.
(cont) Demand in infinantly elastic. You can not assume that any money will find it's way back the the shoe maker. This extra capacity may only be needed to may only be needed seasonally.
I love how this works in a world where scarcity does not mean anything and that income will keep growing. Well if income keeps growing then the more money you make the less it is worth. As we see in the graph it must spending and production must keep going up in order to maintain equilibrium. As spending and production goes up so does inflation. This must keep going on perpetually. Until we hyper-inflate the currency or our means of income. Leading to collapse of the whole economic system.
Ooh now I get it 🙂. Love from india
@jackie8mccall I'm not sure I get what you're saying.
The version of the model shown in the video does not include a Central Bank and a financial system, even so... The multiplier is akin to the velocity of money. There is the same amount of money in the system in the end as in the beginning, but it circulates faster. You can see that in video: every time an arrow shows up, it indicates the velocity of money is increasing.
@IUEC38 where did i get lost ??
my previous comment on this video was merely a sarcastic one.
But back to your reply.Increase of demand can be dealt by firms in 2 ways,either by increase in price(as you say inflation),or by increase of output.According to this video there would be no inflation,only the increase of production.
This Keynesian multiplier effect is misleading and nothing bat a fallacy.
I finally fucking understand. Fuck my lecturer. Thank you, my friend, for posting this up. I was confused about the magic of multiplier effect.
@AlexMerced cont of adoption of innovations amongst the poor. That is interesting factor that I have not considered and probably an increase in that rate would do much to lower the Gini. I was also wondering if something like a measurement of Underemployment (as opposed to unemployment) could more accurately measure a quality of life because it would give a rough estimate of worker's effort at their jobs (which could be used to modify possible productivity levels) and how much they value them
Here's the "mysterious multiplier" effect. 2=1+1, 2-1=1. Factor out 2 on the left: 2(1-0.5)=1. Create "multiplier": 2 = (1/(1-0.5))x1. Add 2 to both sides, ignoring math order of operations on the right: 2+2=(1/(1-0.5))x1+2, 4 = (1/(1-0.5))x3, 4 = 6. The "mysterious multiplier" illegally puts addition first in the math order of operations. That's how you get debt crises from Three Stooges Math :D
Notice the geometric series.
Your video shows Y = C + I. Y + 1 = C + I + 1. There's no multiplier effect there. How do you explain that?
So quantitative easing assumes that an economy has a large store of savings. This would explain why growth has been so anemic despite the Federal Reserve injecting $1 Trillion per year into the economy. Lower interest rates encourage borrowing, but how can you borrow if your already tapped out? This also explains why QE encourages higher unemployment. The United States is heading back into a cyclical recession with already rock bottom interest rates; I don't see this ending well.
this is the world i wanna live in,
today i buy new plasma screen so that next month i get 20k salary raise
How can you call savings a "leakage", when savings is what you are "multiplying"? You can't "multiply" what isn't spent.
@GrandArchitect3D
keep in mind we are also talking about short-term growth, not long term growth.
hey what video was before this video?? as you were saying "we now explored etc etc at 0:16"
Your video shows Y = (1/(1-c)) Abar. Y + 1 = (1/(1-c)) Abar + 1. There's no multiplier effect there either. How do you explain that?
@lostmy1 Increasing the money supply without an increase in goods in services results in higher prices for Goods and services.
I don get it,what you're saying is that the AS curve shifts upward but in the illustration,it is in fact the AD curve shifting. Please review the simple graph that shows AS and AD intersecting and establish which is which
@lostmy1 True. If there isn't increase in demand, there isn't an incentive to increase output.
multiplier effect tells that saving is not good for market expansion or demand increment??? is this correct ??? becoz saving is also earlier or later is investment or spending.sounds oddd ??? help out
So if 20% is saved in banks, how does the banking system affect the economy? at the end all the money saved the banks will also keep 20% and lend the other 80%. So this creates another multiplier effect right? if you only count it without the banking system the 100M would end up being 500M but if you add all the money the bank is lending it is going to end up in even more. Am I right?
I suppose the multiplier is referring to the economy as a whole because the multiplier stems from the aggregate demand function.
Aggregate Demand = C+I+G, and after all the math gymnastics, you'll get national income = autonomous function(multiplier).
Keynesian models here are very very simplified models - they don't take into account several factors such as depreciation, monetary policy, undistributed profits, etc. You'll find that it works differently when all of these are plugged in
@razerfish what is considered the better alternative? (layman here)
It isn't.
Are these videos part of a larger series. What I mean is: Are there more than these 4 awesome videos?
Can increasing government spending help pay back a deficit because of the multiplier?
Its wonderful explanation
circular flow is circular logic, says I.
A very good explanation -- using the circular flow.
this is brilliant!!!!! the example really helped me to understand how the formulas are derived. cheers! :D
love it love it love it! it's an awesome video!
Where I can get the full Video ?
who is the speaker?
I wish.... you are my lecturer
I am impressed!. thanks
can we get a surplus from it?
thanks alottt...-india
thanks
brilliant!!!
I LOVE THIS VERSION
There at least one obvious flaw in this theory.
If 100% of all household income were spent and 0% saved, the theory says the "multiplier" would be infinite -- which is ridiculous. We cant spend ourselves rich, we have to save ourselves rich, or at least to try to.
Savings are what allow businesses to invest in increased production in the future. Economic progress, meaning a higher standard of living, results from businesses finding ways to make more (or better) products while using the same amount of resources, or to make the current amount of product while using fewer resources. This is the only possible source of a "multiplier effect". And the more that is saved, the higher it will be.
he is talking about the keynesian model the keynesian model does not take savings into consideration
you made it clear to me sir! thanks South AFRICA
Hayek has it against the use of government spending to increase the level of output.