The Concept of Multiplier
The Concept of Multiplier The concept of multiplier was first developed by F. A. Kahn in his article "The Relation of Home Investment to Unemployment" in the Economic Journal of June 1931. Kahn's multiplier was the Employment Multiplier. Keynes took the idea from Kahn and further refined it and formulated the investment or income multiplier. Investment multiplier refers to the number of times by which the increase in output or income exceeds the increase in investment. According to Keynes, “The multiplier establishes a precise relationship, given the propensity to consume, between aggregate employment and income and the rate of investment. It tells us that, when there is an increment of investment, income will increase by an amount which is k times the increment of investment" i.e., ∆Y=k∆I where Y is income, I is investment, ∆ is change and k is the multiplier. For example, if investment is made of Rs 100 crore, then the income will not rise by 100 crores o...