... as the bank will invest all of that savings (expect what is kept as part of the reserve requirement), so I am confused as to why we don't include that in the multiplier?
Economic - why doesn't the Marginal Propensity to save factor into the mutplier?
- Posted:
- 3+ months ago by RohanYnaik
- Topics:
- save, confused, bank, reserve, saving, economics, economic, requirement
Details:
Answers (1)
The marginal propensity to save (MPS) is the fraction of an increase in income that is not spent on an increase in consumption. That is, the marginal propensity to save is the proportion of each additional dollar of household income that is used for saving. It is the slope of the line plotting saving against income.
~ google.com
The multiplier is a measure of counterfeit money production. A bank does not have to have money to make a loan. The note signed by the borrower is money: it's worth 40% of face value, cash in fist. The bank creates money, which is the definition of counterfeiting.
There are two schools of economics: traditional and Keynesian. They use the same charts and words, but the Keynesian theories turn the charts sideways. The traditional school teaches that unbacked money is counterfeit, the Keynesian school refuses to admit it.
You should learn both sets of theories because both are in use. Keynesian theories are used by big bankers and politicians because they seem to justify money creation and tax-and-spend policies. Traditional theories are used by anybody who has to make an actual profit.
Study the free materials at mises.org and fee.org