Transfer payments multiplier
In Keynesian economics, the transfer payments multiplier (or transfer payment multiplier) is the multiplier by which
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 result of this chain reaction may be that aggregate spending, and hence equilibrium
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 [citation needed
].
Because not all 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
- ISBN 1-86152-450-1.
References