Posts Tagged ‘Multiplier Effect’

Effectiveness of Policies to Stimulate the Canadian Economy

Wednesday, January 4th, 2012


Because so much (about 30 percent) of the respending effect of the multiplier is drained off by imports when Canadian authorities inject additional demand into the economy, the multiplier effect is quite small. As a result,policies intended to stimulate the Canadian economy have less impact on output and employment in Canada than Canadian authorities would like.

In summary, the heavy exposure of the Canadian economic policy-makers. In particular, the importance of exports and of foreign capital inflows places significant limitations on Canadians authorities in deciding monetary and fiscal policies, forcing them to consider not only domestic Canadian problems, but also international factors, when formulating policies.

 

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Stabilizing the Economy: Government Fiscal Policy

Sunday, February 14th, 2010


Rather than merely hiring the unemployed to do work of little value. For example, tax cuts increase consumer spending, which stimulates many industries. Also, the effects of government spending (such as on a public works project) will spread, via the multiplier effect, through the economy, increasing consumer spending, too. Also, by generating a more favorable economic climate, these efforts by the government can result in increased business investment spending. Thus, the effects of budget deficits designed to stimulate employment will be felt all through the economy, from the toy industry to the construction industry – not merely in the hiring of the unemployed by the government.

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A Note on Creating Jobs

Saturday, September 5th, 2009


Often, when the economy is sluggish and unemployment is high, much attention is given to government efforts to “create jobs.” Many people believe that this simply means direct government hiring of unemployed people, often for “make-work” programs (“digging holes and filling them up again”).

In fact, “creating jobs” is a much more positive concept than this – it refers to government efforts to stimulate the whole economy (through budget deficits), rather than merely hiring the unemployed to do work of little value. For example, tax cuts increase consumer spending, which stimulates many industries. Also, the effects of government spending (such as on a public works project) will spread, via the multiplier effect, through the economy, increasing consumer spending, too. Also, by generating a more favorable economic climate, these efforts by the government can result in increased business investment spending. Thus, the effects of budget deficits designed to stimulate employment will be felt all through the economy, from the toy industry to the construction industry – not merely in the hiring of the unemployed by the government.

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The Multiplier and Fiscal Policy

Monday, August 31st, 2009


As we have seen, fiscal policy is used to stabilize the economy in recessions by increasing the level of spending on goods and services by government, consumers or businesses. The effect of any such increase in spending will, however, spread through the economy due to the multiplier effect, as increases in income generated by the policy are respent again and again. For example, a government road-building program will increase the incomes of construction workers, who will spend part of their increased incomes on consumer goods and services, starting a chain of respending that will increase total incomes and GNP by about 1.6 times the original increase in government spending.

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Similarly, personal income tax cuts that boost consumer spending will initiate a respending effect that will ripple through the economy.

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 The Multiplier and Fiscal Policy

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