Some books state that increase in injection by increasing autonomous spending that results in increase in income in the economy that causes the group of households to increase consumption and savings. My question is whether the ”increase in injection” should just be ‘an injection’ since an injection already indicates an increase in spending or am I wrong here? By saying ”increase in injection” means an increase in the increase in spending?
Secondly, is this method of describing the multiplier process correct?
Assume MPC of 0.7, government injects say $100 into the economy.
1)$100 govt spending creates $100 of extra income in the economy
2) workers working in the infra project receive $100 of extra income and spends $$0.70 for every dollar of increased income and save $0.30 for every dollar of increased income, resulting in increased consumption of $70 that creates $70 of extra income for the second group of workers who sell consumer goods to the previous group of construction workers
4) Workers in second group receive an increased income of $70. These workers who work in consumer goods industry spend $0.70 for every dollar of increased income and save $0.30 for every dollar of increased income, resulting in increased consumption of $49 and increased savings of $21, creating increased income of $49 for the third group of households
Do I need to omit the increase in income/ increase in consumption/ increase in saving for every round of multiplied increase in national income? It is baffling lol
In: Economics
Injection can happen from government spending, but it can also happen from export and investments. Any situation where money previously unavailable to circulation gets introduced.
It should be noted that injection and its opposite, leakage, are constantly happening. Even if you stopped government funding, you cannot stop exports and imports. Think of it as a bit like a swimming pool, there is water flowing both in and out of it constantly, but as long as the rate is kept constant, you will have a controlled water level remaining in the pool.
This is why we say increase in injection. Going back to the pool analogy, to say injection is implying you never let water in and now you will, when what we are doing is increasing the amount of the inflow of water. Yes, maybe you are starting government spending now for something never before, but intake of new money into the currency has always been constantly happening, so we say it is an increase to the inflow, AKA. increase in injection.
For the second part, from my understanding of MPC, you are correct.
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