Multiplier Effect

Introduction
In macroeconomics, a ​multiplier​ is a factor of proportionality that measures how much an
endogenous variable changes in response to a change in some exogenous variable.
In simple words, it's a phenomenon whereby a given change in a particular input, such as
government spending, causes a larger change in an output, such as gross domestic product.

Example
For example, if a variable ​a ​changes by a unit, which is the cause of the change of the second
variable ​b ​by X units, then X is the multiplier.

Types of Multiplier
There are 3 main types of multipliers, which are mentioned below;
● Employment Multiplier
● Price Multiplier
● Consumer Multiplier

Employment Multiplier
Employment Multiplier is is introduced by Prof. R. F. KAHN. The idea of multiplier was
introduced in 1931, when Prof. was discussing about the investment in employment. He was
having the point of view that initially increasing the increase in employment, would have an
effect on the employment eventually, which would make the secondary employment in the
consumption goods industry, because an increased labor would make an increase in the
consumption by the people. His employment multiplier is a ratio of total employment to primary,
where primary employment is the the workers working in public works like repairing sector.
Kahn's employment multiplier is denoted by the letter K in the formula of ​KN¹=N²

Price Multiplier
Income multiplier is applicable until and unless full employment is not reached. In other words
mehandi full employment is reached the resources start to becomes scarce, and inflation can be
seen within the country. The multiplier works by increasing only the prices of resources in an
inflation period. nice multiplier is referred to the ratio of of ultimate increase in price level to
initial increase in prices. For example, after a period of War the economy is unstable, which
creates and inflation shook, creating a price multiplier.

Consumption Multiplier
Concept of " Saving Potential" is developed by Professor R. Nurkse. Its their belief that to break
the circle of poverty we have to to generate an economic development with the use of saving
potential concept.
According to them there is a round one-fourth of disguised unemployment in rural sectors of
underdeveloped economy. The disguised unemployment has the saving potential, so we have
to remove such unproductive workers who doesn't play any important part of productivity.
According to the consumption multiplier, if we're able to manage the marketable surplus for
initial batch of worker, then the investment and employment can be increased.
For example production of goods is 1000unit, and real wage is 1, while the disguised unpaid is
0.5unit. If the units are invested, the production of goods is 1000unit will allow 1000 disguised
unemployment and convert in productive worker giving a surplus of 500 consumption units and
a transfer of 500 workers as well. We see that the investment of 1000 units and workers, lead to
total employment of 2000, so /calculating the consumption multiplier by 2(2000/1000=2).