Super Multiplier

Alok Jung Joshi

Introduction

• Developed by Sir John Richard Hicks(1904-1989)

• First published in his book “A Contribution to the Theory of Trade Cycle” (1950)

• Mathematical derivation of the interaction of multiplier and accelerator

Why Super Multiplier?

• Ignored the induced increase in the aggregate investment outlay

• Simple multiplier was based on the Great Depression of thirties

Concept of Super Multiplier

• Mathematical derivation of the interaction of multiplier and accelerator

• It explains the combine effect of multiplier and accelerator on equilibrium income, output and employment.

• Due to the inclusion of induced investment demand , super multiplier will be greater than simple multiplier

• According to Super multiplier , the total income in the economy will increase by KS times the initial increase in the autonomous investment.

Mathematically, it is expressed as,

where, ΔY = change in income

ΔIa = change in autonomous investment

Ks = Super multiplier

Derivation of the equation

E3

S1

S

I

I1

E2

E1

I’a

I

I Ia

Y1 Y2 Y3 Output

X O

Y