NAME: AJEET KUMAR PANDEY

CLASS: SB2

INVESTMENT QUADRANT

Classical economists were thinking that savings would need to be

increased because it gives more funds for investment. As when a

person save lot of money through different sources like fixed

deposit, bond, share, LIC etc then economy can get more and

more credit money from this institutes but Keynes disputed this

assumption because he argued that any increase in savings

would mean that people spent less, So that consumption will be

less this would mean a decrease in aggregate demand. This

would just make things worse and firms would be even less

inclined to invest because they would find the demand for their

products decreasing. And we know that when demand of

commodity decrease industries would forced to decrease their

price to increase sell as a result supply of goods and services will

decrease according to law of supply. He felt that investment

depended much more on business expectations. And at last any

body does not enter in the market to produce goods and service

and that’s why development will not possible.

THE MULTIPLIER EFFECT

When there is inflation in the economy and if there is external

money pumped in the economy, as a result whatever is put has a

great effect then the actual value will be very high. For example

if your father give you Rs100, then the value of that money is Rs.

100, then you purchase a movie ticket with that money, then that

movie plex owner spend it for electricity, then that electricity

department used to pay their staffs salary and your father is the

staff of that company, so can you imagine what will be the value

of that money 100+100+100+100 = Rs400 then the value of

initial money is Rs. 100 and now Rs.400 then this is known as

multiplier effect of money in the economy. Any increase in

aggregate demand in the economy would result greater increase

in National Income. This process came about because any

increase in demand would lead to more people being employed.

If more people were employed, then they would spend the extra

earnings. This in turn led to even more spending, which led to

even more employment which led to even more income which

then led to even more spending and so on. The length of time this

process went on for would depend on how much of the extra

income was spent each time. If the initial recipients of the extra

income saved it all, then the process would stop very quickly as

no-one else would get their hands on the extra income. However,

if they spent it all the knock-on effects of the extra spending

would carry on for some time.

Thanking you.