Ational Income Multipliers and Their Connections to Economic Policy effectiveness

Abstract

The study aims to derive the full multipliers of the economic variables that affect income, which are government expenditure, tax, money supply, the general level of prices, the exchange rate, and the lag of income. The reduced form of the income model was used by deriving the total expenditure equation from which the various income multipliers were derived. These multipliers are in line with macroeconomic theory in determining the effectiveness of economic policy, whether fiscal, monetary, price, income, or exchange, via the exchange rate. The study concluded that the higher the elasticities of economic variables, the higher the effectiveness of economic policy using one of the variables and vice versa. The economic state of the specific economy also affects the effectiveness of economic policy. In addition, the multipliers derived in this study facilitate the analysis of economic policy and show the extent of its effectiveness in different cases.