Present Value of the Future Consumer Goods Multiplier

Ihor Kendiukhov

Papers from arXiv.org

Abstract: In this paper, we derive a formula for the present value of future consumer goods multiplier based on the assumption that a constant share of investment in the production of consumer goods is expected. The present value appears to be an infinite geometric sequence. Moreover, we investigate how the notion of the multiplier can help us in macroeconomic analysis of capital and investment dynamics and in understanding some general principles of capital market equilibrium. Using the concept of this multiplier, we build a macroeconomic model of capital market dynamics which is consistent with the implications of classical models and with the market equilibrium condition but gives additional quantitative and qualitative predictions regarding the dynamics of shares of investment into the production of consumer goods and the production of means of production. The investment volume is modeled as a function of the multiplier: investments adjust when the value of the multiplier fluctuates around its equilibrium value of one. In addition, we suggest possible connections between the investment volume and the multiplier value in the form of differential equations. We also present the formula for the rate of growth of the multiplier. Independently of the implications of capital market dynamics models, the formula for the multiplier itself can be applied for the evaluation of the present value of capital or the estimation of the macroeconomic impact of changes in investment volumes. Our findings show that both the exponential and hyperbolic discounting in combination with empirical evidence available lead to the value of the multiplier that is close to one.

Date: 2024-02
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