A Taxonomic Note on the Multiplier and Income Velocity

Abstract

There has recently been discussion of some aspects of the relationship between the multiplier and velocity (by which we shall always here mean income velocity).' The purpose of this note is to set out the relationship between the two as it stands in current economic theory. The method used here is to set up a comparative equilibrium Keynesian model and to derive from it equations for multipliers and velocities below and at full employment. This Keynesian model at full employment is then modified into a quantity theory model, and from some of the equations derived above we then derive a multiplier and velocities for this quantity theory model. The relationship between the multiplier and velocity is then briefly summed up in the light of these results.