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# Multiplier - PowerPoint PPT Presentation

Multiplier. Multiplier. Y. 45 0. C + I + I”. C + I. C. Aggregate Demand. O. X. National Income. Multiplier. Increase in aggregate demand will increase the equilibrium level of national income and decrease in aggregate demand decreases the equilibrium level of income

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## PowerPoint Slideshow about 'Multiplier' - evita

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### Multiplier

Y

450

C + I + I”

C + I

C

Aggregate

Demand

O

X

National Income

• Increase in aggregate demand will increase the equilibrium level of national income and decrease in aggregate demand decreases the equilibrium level of income

• Is there any specific relationship between the changes in aggregate demand and the change in national income?

• If yes, what determines this relationship?

• Answers to these questions lies in multiplier theory

MPC Multiplier

0.00 1.00

0.10 1.11

0.50 2.00

0.75 4.00

0.80 5.00

0.90 10.00

1.00 Infinity

• Used in economic planning and projections and assessment of possible effects of the changes in government policy

• Assessment of overall possible increase in the national income due to one-shot increase in investment or due to single injection investments

• Plan economic growth of the country

Planned growth Rs. 100 Billion

Multiplier = 5

Investment requirement = Rs. 20 Billion

A . Leakages

1. payment of the past debts

2. Purchase on existing wealth

3. Imports of goods and services

B. Non-availability of consumer goods and services

C. Full employment situation