Monday, 8 July 2013

Static Dynamic Multiplier

 Static Dynamic Multiplier

Depending on the purpose of analysis sometimes a distinction is made between the static multiplier and the dynamic multiplier. The static multiplier is also called comparative static multiple simultaneous multiplier, logical multiplier, timeless multiplier, legless multiplier and instant multiplier.

Static Multiplier
                                The concept of static multiplier implies that changes in investment causes change in income instantaneously. It means that there is no time lag between the change in investment and the change in income. It implies that the moment a rupee is spent on investment project, society’s income increases by a multiple. Let us explain the concept of the dynamic multiplier also known as period and sequence multiplier.

Dynamic Multiplier  
                                        The concept of dynamic multiplier recognizes the fact that the overall change in income as a result of the change in investment is not instantaneous. There is a gradual process by which income change as a result of change in investment or other determinants of income. The process of change in income involves a time lag. The multiplier process works through the process of income generation and consumption expenditure. The dynamic multiplier takes into account the dynamic process of the change in income and the change in consumption at different stages due to change in investment. The dynamic multiplier is essentially a stage-by stage computation of the change in income resulting from the change in investment till the full effect of the multiplier is realize.

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