Multiplier (economics)
In macroeconomics, a multiplier is a factor of proportionality that measures how much an endogenous variable changes in response to a change in some exogenous variable.
Not to be confused with the Lagrange multiplier, a mathematical tool often used in economics.For example, suppose variable x changes by k units, which causes another variable y to change by M × k units. Then the multiplier is M.
General method[edit]
The general method for calculating short-run multipliers is called comparative statics. That is, comparative statics calculates how much one or more endogenous variables change in the short run, given a change in one or more exogenous variables. The comparative statics method is an application of the implicit function theorem.
Dynamic multipliers can also be calculated. That is, one can ask how a change in some exogenous variable in year t affects endogenous variables in year t, in year t+1, in year t+2, and so forth.[1] A graph showing the impact on some endogenous variable, over time (that is, the multipliers for times t, t+1, t+2, etc.), is called an impulse-response function.[2] The general method for calculating impulse response functions is sometimes called comparative dynamics.