Multiplier Effect

In the concept of economy, a multiplier effect is usually refers to the concept of spending a one-ringgit (or dolar or pound etc) will leads to value of hundreds of ringgit (i forget the formula, maybe 1/m, where m= percentage of required reserved in bank).

For example:
Assume that everybody will save 20% of what they received., ceteris paribus (dush! i havent use this term for such a long time - referring to assuming no other things change; double assuming in economics:p)

if you were given RM10; you will keep RM2, and spend RM8. The next person received RM8, will keep RM1.60 and spend RM6.40; Next person received Rm6.40 will keep RM1.28 and spend RM5.12 , and the list goes on..

Taking the list above as an example, in the case of having RM10 will leads to RM8+RM6.40+RM5.12 = RM19.52 +++ (as the list goes on) transactions and RM2 + 1.60 + RM1.28 = RM4.88 ++++ (as the list goes on) ... total up these 2 actually the value of RM10 has become RM24.40 by the 3rd person..

Following this concept, that RM10 can goes up to RM50 in value (RM10/20% = RM50).

Have you understood about this concept now?
Let see what is the definition of this term in economy words:

Multiplier effect is the expansion of a country's money supply that results from banks being able to lend; with the weightage of the effect depends on the percentage of deposits that banks are required to hold as reserves.

The bad thing about this is, when there are too many money supplied in the market, the value of the money will drop, inflation will rise and people will have less buying power - leads to economy downturn.

What is the point here?

The same matter actually circulate in daily life and routine. This if i would be able to say is part of the nature itself...

The effects of doing one good thing will leads to doing many good things, so thus the effects of doing one bad thing will leads to other bad effects.

If i can give an example of a life scenario :

People A... If a teenager who is highly discipline, hardworking, behaving good and intelligent becomes an adult; meet another good partner and the couple is married, there will be probability for their children to be as good as them. Let say 3 out of 4 children inherit those excellent quality. (I left one for uncertainty, as we cannot divide person in %). In this scenario, from 2 good people we have 5 of them.

This is a wonderful story for most people. If we multiply their existences, we will add more good people of Group A.

Another example, for People B: a teenager who is 'naughty and adventerous' grown up, get married to another hip-hip-hooray spouse, this couple have 4 children of which 2 become as problematic as they were when they were young. Worst when the parents have not realize their mistakes, drag along the children mind/behaviour/perspective and spoilt them .. and at one time when the parents want to advice the children, they will reply back with "as if you were never did this when you were young", obviously the parents will shut their mouth up.

And here, we will expect more people from Group B exists through marriages/birth.

Considering the facts that as the negative elements can easily influence people who do not have good foundation, with percentage one out of 3 being easily influence, the people in group B will increase by taking out the people in group A. In the end, more people will be in group B...

Now when we look around we see cases and immoral behaviours once upon a time was rare things become common things nowaday, we know it is part of the multiplier effects of what happen in the past.

Way(s) to solve it?
In economy way of handling the situation of surplus money supply in the market is by increasing the interest rate (where lead people to buy less and save more), and increase the bank reserve rate (where more money will be kept instead of spend), until it is break even - the inflation become deflation, demand for money is parallel to supply.

How about to apply this in our society?
What do you think?

I'll let you know my opinion later...



Notes: all of this except on the matter of economic's theory is my personal opinion... please dont take it hard, but not too light.


P/S: Mudin, if you are reading this - i would like to let you know i cant read or give comment in your blog as the link will return as white page.

p/s 2: As, i am sorry baru baca blog As selepas sekian lama. Takziah untuk As dan keluarga. Moga rohnya dilimpahi rahmat Allah SWT, and may Allah give peace to your heart too.. AMiiin.