The question is why is the provision of employment an external benefit.
Can I use the multiplier effect, even though the cycle hasn't been started by an initial increase in spending..
Higher employment, higher incomes, higher AD, leading to further increase in employment...
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- Thread Starter
- 12-10-2009 21:18
- 12-10-2009 22:25
why higher employment => higher incomes? wouldn't it actually decrease the income, as there will be more competition? overall, there might be increase in income as a whole, and that might lead to higher spending, consumption (C) is likely to increase. Then you can use multiplier effect. Basically use it whenever AD shifts, depends which way, you can add positive or negative. Examiners like it. So in your case, that would be positive multiplier effect. If you want, you can define multiplier and give a formulae for it. Examiners will be jolly happy.
- 13-10-2009 13:15
the multiplier effect doesn exist (or rather its <1), according to barro's recent research.