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Your assignment is to prepare and submit a paper on the three types of regional multiplier.
Your assignment is to prepare and submit a paper on the three types of regional multiplier. The disadvantage of using the Keynesian model is the fact that the leakages from the regional expenditure could greatly influence the accuracy of the computation. (Armstrong and Taylor, Ch.1 p.13) These data are difficult to obtain.
The ‘Input and Output multiplier’ is useful in providing a detailed industry-by-industry breakdown of the projected effects of changes in the demand for goods and services. (Armstrong and Taylor, Ch.2 p.43) This can be achieved by constructing sectoral output multipliers and household income multipliers. This benefit of using this type of multiplier model is its internal consistency since all factors that affect the final demand are recorded. (Armstrong and Taylor, Ch.2 p.57)
The disadvantage of using the input and output multiplier includes the fact that there are some limitations when it comes to data gathering. (Armstrong and Taylor, Ch.2 p.56) Data gathering for this purpose is very expensive, especially when studying a large region. Sometimes, private companies do not cooperate with the researcher. (Armstrong and Taylor, Ch.2 p.56) The reliability of this forecast highly depends on the accuracy of data gathered from the private companies. Also, this model uses national input-output data such as important figures. This figure could be highly underestimated.
There are drawbacks to using regional multiplier models. Data that comes from a region or locality are merely estimated figures. Specifically, the Keynesian regional multiplier requires the need to determine the amount of expenditure that leaks out of the region. (Armstrong and Taylor, Ch.1 p.17) This process is tedious since it demands a lot of time and effort in determining the nature of the leaks.
Among the reasons .why the analysis using regional multiplier is weak is because it does not take the capacity constraints into consideration. it fails to allow interregional feedback effects. it does not show the full impact of expenditure injections.
