Just answer the questions.
Question 2Giblin’s multiplier
L F Giblin is often named as one of the inventors of ‘the multiplier’. In his 1930 inaugural lecture[1]he wishes to analyse the macroeconomic consequences of an exogenous fall in export income to a woolgrower of £900. Giblin argues as follows:[2]
“A woolgrower receives £900 less income than his average. He has, therefore, £900 less to spend. He will reduce his expenditure on those goods and services he can best spare. One-third of total consumption is on imports, and we may assume that one-third of his reduction of expenditure, £300, will be for such goods. The remainder will be for domestically-produced goods and services. Let us suppose he puts off a fencer engaged in improving his property at a cost of £200 per annum; saves £200 on clothing, putting a tailor out of work; and saves another £200 in pleasure-travelling, putting a motor-mechanic or driver out of work who was previously earning that sum. There is no other income available for employing the fencer, tailor and motor-mechanic, and there is, therefore, a further loss of income of £600, two-thirds of the original £900. This £600 of income was also being spent by the fencer, tailor and motor-mechanic, one-third, or £200, on imports and two-thirds, or £400, on the landlord and butcher and boot-maker and other Australian workmen. So that there will be a further loss of Australian income of £400. And so on, until, in the end, there has been a reduction in imports of £900 in all, and a reduction of Australian income of £2,700, or three times the direct shortage of income of the wool-grower” (Giblin, 1930, p 3f).
Two questions: (In answering these questions assume that G = 0 and that there are no taxes.)
(a) Written as an equation, how can we write Giblin’s formula or ‘expression’ for the (export) multiplier?
[3 marks]
(b) What is the ‘size’ of Giblin’s multiplier and what values is Giblin assuming for the relevant ‘propensities’ or ‘components’ of the (export) multiplier? (Show workings)
[2 marks]
END OF QUESTIONS
[1] L.F. Giblin, Australia, 1930: An inaugural lecture, Melbourne University Press in association with Macmillan, 1930. I don’t believe I have left out any relevant information but if you do want to find the text of the whole thing there is a pdf copy in the LMS folder for the subject under Assignment 1.
[2] The symbol £ is for ‘pounds’. Before adopting dollars and cents in 1966 Australia used pounds, shillings and pence as its currency.
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