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    Is the negative multiplier whenever any of the injections into the circular flow (investment, exports and gov spending) decrease? If they decrease how is a negative multiplier created because of this?


    Thanks!
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    It's not an injection that causes a negative multiplier. A negative multiplier is due to an initial fall in AD (for whatever reason) that leads to an even greater fall in GDP (Much like a chain reaction).
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    Negeive Multiplier Effect is actually caused by a decrease in AD. this might be that if Investment is low it could mean that less need for labour hence its likely to be decreased demand for labour/workers.... leading less disposable income by them and their spending would be less resulting less moneys generating as Circular Flow of Income..... hope this is helpful
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    Sorry to be slightly off-topic here, but people have answered it already anyway. Do they still teach people at A Level that the multiplier exists (for sure)?
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    The only form of diminishing returns with regard to the multiplier effect after a initial injection would occur due to leakages from the circular flow of income, e.g., private saving.

    A negative multiplier effect would arise from a significant drop in any of the components of aggregate demand.
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    (Original post by danny111)
    Sorry to be slightly off-topic here, but people have answered it already anyway. Do they still teach people at A Level that the multiplier exists (for sure)?
    In the A level text book I have it says it was an argument put forwards in John Maynard Keynes on employment, interest and money(I can't remember the actual name of the book lol). However in class, my teacher told us that it exists, he did not say that it was only an argument or a theory.

    Why? Is there evidence to suggest that it does not exist?
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    (Original post by Liamp487)
    In the A level text book I have it says it was an argument put forwards in John Maynard Keynes on employment, interest and money(I can't remember the actual name of the book lol). However in class, my teacher told us that it exists, he did not say that it was only an argument or a theory.

    Why? Is there evidence to suggest that it does not exist?
    Well it exists, obviously.

    The question is whether it is significantly different from 1 in magnitude in either case. The professor who is my boss right now says it is "bull****". The money multiplier sure does not exist (any more). The fiscal multiplier might.
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    http://econospeak.blogspot.ch/2013/0...ultiplier.html

    Read that blog, and you can read some of the article it mentions. Discusses the money multiplier and why it doesn't exist.
 
 
 
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