Thesis: The Multiplier Effect

Sample Thesis Paper

John Maynard Keynes is considered as the most influential economist of the century. Keynes proposed a theory which is very famous and widely used throughout the economical world. Keynes projected the idea of spending money which we don’t have which is also known as the income expenditure multiplier effect (Keynes 2006). The Keynes multiplier model applies this function in the function implies that the amount that people would spend depends on the level of their income.

According to Meierding (2009) “[John Maynard Keynes’] multiplier effect is based upon those receiving income from government spending it again in return. Those who receive income from them must spend it in turn so that the money spent by government multiplies a number of times”.

Keynes believed that people needed to be employed specially when there is a slowdown in the economy and at this moment the government has to play its role in order to keep the people in working because the private sector would be hesitant in spending which would result in lower investment and lower investment would mean fewer jobs (Farago 2002).

Keynes contended that aggregate demand for goods might be inadequate during economic turndowns which would lead to unemployment. In this situation the government policies should be used to boost the aggregate demand which would eventually result in increasing the economic activity and eradicating unemployment. By government policies it means that when there is a downturn in the economy and not much happening in the economy the government should borrow money and start spending to run the economic cycle.

When the economy enters such a state of distress, it is natural to expect a decrease in aggregate demand. This decrease in aggregate demand in turn results in a directly related decrease in consumption.

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