When there is low multiplier , the government is weak then why the economy becomes more stable?

Question

When there is low multiplier , the government is weak then why the economy becomes more stable?

Answer 1

A low multiplier means that the aggregate demand cannot be increased substantially by additional govt spending because the additional incomes by Govt spending gets saved more rather than consumed and hence reducing the effectiveness of multiplier process. Let us say that marinal propensity toconsume is zero. This means the multiplier is just one.  Now, Weak governments are those which have high proclivity to spend for political reasons and for spending on unprodtive projects to enabkle politicians, their henchmen and bureacracies to make more  personal money by corrupt methods of awarding contracts. Such govts spend much beyond the taxx and other revenues the govt collects even if the tax rates are high. These high level of Govt spending during periods of near full employment or inflation helps further stoke inflation by increasing aggregate demand by increasing govt. spending.  If the multiplier is high, the effect of aggravating inflation is higher. So, a lower multipler has a lower impact on stoking inflation if the multiplier is low and hencethe economy becomes more stable. In most weak govt countries, govts. run high  budget deficits  and bulging govt. expenditure and therefore cause high inflation, because the multipklier is high.

But in the hands of strong and non-corrupt govts, high multipliers are good because the required increase/ decrease in Govt spending or reduction/ increase in taxes is smaller to counteract depression and recession  or inflation.

Large changes in govt. expenditures and taxes cause large distortions in the economy. These are minimised if the multiplier is small: the weak govts. then can cause lower damage to the economic stability.

Answer 2

you may need to revise the question . what do you mean by weak government ? in terms of contribution , spending , or taxing or you mean the relative size of Government is rather small? and what do u mean by the stable, do u mean the fluctuations of business cycle is less volatile? if that is the case Government can not be weak , it certainly has approached the policies which help stabilize the economics growth . and the last one what do u mean by law multiplier , How Low it is ? by the way a low multiplier indicates that people  save more than consume, and if the savings is increased considerably in the economy then the financial sector can channel these savings into productive investment and increase GDP , but how an economy can maintain high level of savings goes back to Government policies that how successful they are to keep people motivated and encouraged to save rather than consume.