multiplier effect has been used as an argument for the efficacy of government spending ortaxation relief to stimulate aggregate demand.For example, if an increase in German government spending by €100, with no change in taxes,causes German GDP to increase by €150, then the
is 1.5. Other types of
can also be calculated, like multipliers that describe the effects of changingtaxes (such as lump-sum taxes or proportional taxes).Keynesian economists often calculate multipliers that measure the effect on aggregate demandonly. (To be precise, the usual
formulas measure how much the IS curveshifts left or right in response to an exogenous change in income or spending.) Opponents of Keynesianism have sometimes argued that Keynesian multiplier calculations are misleading; forexample, according to the theory of rational expectations, it is impossible to calculate the effectof deficit-financed government spending on demand without specifying how people expect thedeficit to be paid off in the future.
The level of FDI by a home country (where the TNC is headquartered ) in a host country(wherebranch plants are located) can be measured by either the stock or the flow of FDI. The stock isthe present economic value of all previous FDI investments (plant, equipment and stocks of unused inputs and unsold outputs) and represents the accumulated presence of TNCs in the hostcountry.Encouraging the inflow of FDI can stimulate rapid growth by drawing on the external resources,but this is only effective as a development tool if this inflow leads to further beneficial
METHODS OF CALCULATING MULTIPLIER EFFECT:General method
The general method for calculating long-run multipliers is called comparative statics. That is,comparative statics calculates how much one or more endogenous variables change in the longrun, given a permanent change in one or more exogenous variables. The comparative staticsmethod is an application of the Implicit Function Theorem.Dynamic multipliers can also be calculated. That is, one can ask how a change in someexogenous variable in year
affects endogenous variables in year
, in year
, in year
, andso forth. A graph showing the impact on some endogenous variable, over time (that is, themultipliers for times
, etcetera), is called an impulse-response function.
The generalmethod for calculating impulse response functions is sometimes called comparative dynamics.
HISTORY OF FDIs AND MNCs IN INDIA:
The post financial liberation era in India has experienced huge influx of '
MultinationalCompanies in India
' and propelled India's economy to greater heights.