World Library  
Flag as Inappropriate
Email this Article

Transfer payments multiplier

Article Id: WHEBN0022752001
Reproduction Date:

Title: Transfer payments multiplier  
Author: World Heritage Encyclopedia
Language: English
Subject: Keynesian economics
Collection: Economics Effects, Economics Terminology, Keynesian Economics
Publisher: World Heritage Encyclopedia
Publication
Date:
 

Transfer payments multiplier

In Keynesian economics, the transfer payments multiplier (or transfer payment multiplier) is the multiple by which aggregate demand will increase when there is an increase in transfer payments (e.g. welfare spending, unemployment payments).[1] Transfer payments are not in the same theoretical category as government spending on goods and services because such payments are not directly injected into a goods market. Instead, the spendable funds are transferred to a member of the public, who then may spend some or all of them. For this reason transfer payments are analyzed as negative taxes, and their multiplier is usually considered to be equal in magnitude but opposite in sign (specifically positive rather than negative) from that of taxes.

One dollar of transfer payments results in up to one dollar of spending by the recipient. In turn, the recipient of that spending has experienced an increase in income and spends a portion of it on more goods, giving the next person income some of which is spent, etc. The end result of this chain reaction may be that aggregate spending, and hence equilibrium GDP, has gone up by more than the original dollar. However, the size of this multiplier effect is likely to be diminished by two considerations: first, an upward push that the new spending gives to interest rates, which diminishes spending on goods such as physical capital and consumer durables; and second, an upward push that the spending gives to the general price level, which diminishes the quantity of aggregate demand for several reasons.

Because not all of the original dollar is necessarily spent by the recipient of the transfer payment, the resulting multiplier is likely to be somewhat less than the multiplier of government spending on goods and services.

See also

Notes

  1. ^ Macdonald, Nadia Tempini. Macroeconomics and business. p. 138.  

References

  • Essential Foundations of Economics 4e
  • Economics of Social Issues
This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and USA.gov, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for USA.gov and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
 
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
 
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.
 



Copyright © World Library Foundation. All rights reserved. eBooks from World Library are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.