JULY 25 — I took A-Level Economics 40 years ago. A topic that has stayed with me since then is the “multiplier effect”.
What is the multiplier effect in economics?
The multiplier is the number of times larger the change in income is, compared to the change in net injections that caused it.
The multiplier effect states that an initial injection of spending or investment (usually by the government) leads to increased consumption spending and so results in an increase in national income greater than the initial amount of spending.
For example, if the government spends a one-off cash aid of RM100 for all Malaysians aged 18 and above, to be used to purchase necessities from over 4,100 outlets including hypermarkets such as Mydin, Lotus, Econsave, and 99 Speedmart, the multiplier effect works by creating a cycle of spending and income. When the cash aid is spent, it creates income for others.
The cycle continues as the income generated from the initial spending is spent and re-spent throughout the economy, leading to a larger increase in output than the initial spending alone.
The cash aid is one of two main types of multipliers in economics—that is, government spending multipliers. Government spending multipliers refer to the impact of changes in government spending on overall output.
The multiplier effect can be a key driver of economic growth, as it can lead to increases in overall output, employment, and incomes.
The size of the multiplier effect depends on a variety of factors, and its impact on economic growth will vary depending on the specific circumstances.
But I did not pursue economics at tertiary level and I am not an economist.
My two-cent is that the cash aid comes with the multiplier effect.
Being thankful has the multiplier effect as well. The Quran says: “And remember when your Lord proclaimed, ‘If you are grateful, I will certainly give you more. But if you are ungrateful, surely My punishment is severe.” (Surah Ibrahim, verse 7).
**This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
