Multiplier effects exist in the economy because a dollar saved is a dollar earned, but a dollar spent that doesn’t get consumed grows. For example, when a film goes into production, most of the financing is done with pre-tax dollars that are sold to free investors at a discount. The incentive is the tax savings. It’s hard to say how the investment is creating a specific multiplier, but it is well understood that these local tax savings create pockets of spending where the production is shot. Let’s say a film has just received a local grant or stipend of $10,000. This money will be spent almost entirely in the local region where the film set is at. If the production goes to Germany, which is common due to good tax incentives, that money is exchanged for £8,300 and spent in the location of where the film is being produced, in this case, somewhere in Germany. That is a new injection of cash, which goes into the entire cycle of a multiplier for consumption. One important part of the divisor for calculating the multiplier is the “Marginal Propensity To Consume”. The multiplier for consumption is calculated as follows: Let’s say the marginal propensity to consume is equal to 95% of a sin…
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