What Is The Perspective Multiplier Model?
The multiplier model has been enormously influential in macroeconomic analysis over the last half century. At the same time, it leaves many macroeconomic factors out of the picture. As we see, it neglects the crucial influence of monetary factors on interest’s rates and through these on investment and other interest sensitive components of output. More importantly, it omits the supply side of the economy as represented by the interaction of spending with aggregate supply and prices. It will be useful to pause at this point to put all this in perspective and to see how the multiplier model fits into a broader view of the macro economy. In the long run potential output limits the amount a country can produce. But in the short run the multiplier model shows how aggregate demand influenced by investment and consumption spending, determines gross domestic product. This approach also helps us understand why economies sometimes suffer from high unemployment. The discussion again points to a c
