I am taking a degree in macro economics, and am at a juncture where knowledge about the Keynesian Multiplier is imperative. Though I've been at the lectures, read the literature and scoured the web, I am still somewhat confused about exactly how to define the model for this multiplier. At present, I would say that the following sums up the model:
"The keynesian multiplier effect shows how a small positive exogenous change in GDP substantially affects the total amount of GDP in a positive direction. For example, a increase in investment in infrastructure will always yield a higher GDP."
Now, that certainly is not a definition of the model, but more a working explanation of it (and a short one at that). What worries me, however, is the following questions:
- Will, in fact, the small change in GDP (in regards to the example above) always yield a higher amount of total GDP?
- Is the multiplier only relevant to fiscal and monetary amounts, such as GDP?
- What role does marginal consumption/saving propensity play in all this?
So basically, I am hoping for a closer and more precise explanation of the keynesian multiplier, as I've had little luck so far.
