What is a negative multiplier?

Answer 1

A negative multiplier works in a way that is the opposite of a multiplier effect. See http://en.wikipedia.org/wiki/Multiplier_effect.

When money is circulating freely, it can pass through many hands in a relatively little time. When it is circulating fast, you have an economic boom. Everyone has money. Many people expect the good times to last indefinitely. But eventually every boom has its bust; every bubble bursts.

A negative multiplier is found when several economic factors turn negative at the same time. If it were only one, the economy might sputter, but it would continue along much as usual. With several at the same time, money can no longer circulate as fast. It passes through fewer hands in the same period of time and therefore can benefit fewer people. People spend more slowly and some is taken out of circulation by prudent people who hide an emergency fund in their mattresses or something similar. There is less money for new enterprises AND less for the day to day operations of the economy. Cautious lenders lend less money. When several negative factors effect a boom economy, the economic momentum is slowed for a time, maybe even years, but the economy is basically healthy. When the same problems pop a bubble or several bubbles, consumers and businesses realize they've been counting on money that does not really exist. They tend to change over to a survival mode in which they cut down even on expenditures they could afford because they can no longer see a positive future. Credit disappears and business let workers go. Negative expectations drag the economy down further. What might have been salvaged by a more optimistic outlook and a return to more free spending may drag on indefinitely or require extreme intervention. Each negative factor by itself may have impacted a limited number of businesses or people, but combined, the effect of several will not simply be added, but will be multiplied as the first negative 'wave" reaches more and more participants in the economy. One rock causes a splash, many rocks cause a tsunami. signed philipwyliefan