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Essay / Research Paper Abstract
A 7 page paper discussing the statement that the multiplier mechanism operates through altering capacity utilization or the functional distribution of income. Altering capacity utilization or the functional distribution of income is dependent on the cumulative effects of several factors. Harrod (1939) was aware of the need to define the uneven growth path he could see. The Keynesian multiplier mechanism meets that need. Bibliography lists 6 sources.
Page Count:
7 pages (~225 words per page)
File: CC6_KSeconMulti.rtf
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Unformatted sample text from the term paper:
capacity utilization or the functional distribution of income is dependent on the cumulative effects of several factors. Harrod (1939) was aware of the need to define the uneven growth
path he could see. The Keynesian multiplier mechanism meets that need. Effective Demand and Capacity Utilization In the Keynesian tradition, both effective
demand and capacity utilization are key concepts. Effective demand is the total aggregate demand for a good or service which is backed by true purchasing power (Dutt, 2001).
The origin of the purchasing power is irrelevant; it may be in the form of cash, credit, collateral debt, barter or any other means of exchange that the producer of
the good or service sees as valuable and is willing to accept as payment. Capacity utilization is the "ratio of actual output to
potential output which fully utilizes the installed capital stock of firms" (Dutt, 2001; p. 254). Thus capacity utilization likely is greater than a firms present physical capability to produce
additional goods or services. If a sock manufacturer is fully staffed and has all of its machines operating 24 hours a day, seven days a week, it is operating
at the maximum capacity it presently is able to achieve. If the company is profitable or has promise of being profitable, it will have additional capital available to it.
That capital may be in the form of cash reserves, market capitalization, debt, government grants or any other path of capital acquisition available to the firm. For the
purposes of analysis, the firm is not fully utilizing all capacity available to it unless and until it has no other capital available to it.
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