ABSTRACT
Thus far, we have neglected the analysis of the precise mechanism of income fluctuation. Such an analysis is necessary to answer the quantitative question: by how much does national income, total employment or general prices change? The answer to this question will be found to provide the clue to the corollary policy question of what economic quantity is to be deliberately changed in order to achieve a desired economic state of affairs in a particular institutional context. Indeed, there can be no solution to the problem of scientific control and prediction in the economic field except by clarifying the specific mechanisms involved in economic changes. In this chapter we shall analyse the most fundamental mechanism of income fluctuation known as the ‘simple-multiplier process’ based on simplifying assumptions about the structure of the economy and the behaviour of economic variables.
