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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.

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closed as off topic by Joshua Ulrich, Karol Piczak, OleVik, chrisaycock Apr 11 '11 at 20:34

Questions on Quantitative Finance Stack Exchange are expected to relate to quantitative finance within the scope defined by the community. Consider editing the question or leaving comments for improvement if you believe the question can be reworded to fit within the scope. Read more about reopening questions here.If this question can be reworded to fit the rules in the help center, please edit the question.

This is a well-asked question, but it's off-topic for this site. It would be perfect for the Economics proposal. – Joshua Ulrich Apr 11 '11 at 20:18
Point taken, and I did commit to the Economics-site. – OleVik Apr 11 '11 at 20:29

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