Archive | Investment Multiplier

Investment Multiplier: Concept, Process and Limitations! Change in Equilibrium National Income: (Static) Investment Multiplier: The time has come to pose a question of direct importance to the policymakers since aggregate demand is inadequate to put the economy on to the path of full employment. Fig. 10.11 or 10.12 tells us that the economy remains below the state of full employment— [...]

The following points highlight the three main reasons for the Failure of Investment Multiplier in an Underdeveloped Economy. The reasons are: 1. Disguised Unemployment 2. Inelastic Supply of the Needed Consumer Goods 3. Lack of Excess Capacity in the Consumer Goods Industries. Reason # 1. Disguised Unemployment: For an efficient working of the multiplier, the Keynesian assumptions of involuntary unemployment, [...]