Tuesday, August 27, 2013

Keynesian Economics and the Ottawa Light Rail Transit

John Maynard Keynes said that economies have approximately a 5 time multiple on invested dollars. This is called the Keynesian Multiplier.

In common language, it means, if a person spends $1, it makes 5 revolutions through the local economy.  For instance, you buy a loaf of bread from the baker, he buys grain from the farmer, the farmer buys a new shovel, the hardware store owner buys a loaf of bread, and on and on.  Each time the money changes hands it is reduced a bit, by the savings multiplier, taxes, etc.

The new Light Rail Transitway in Ottawa will be bringing approximately $2.1 billion of investment to Ottawa with 1/2 of this money being spent in Ottawa.  If you do the Keynesian multiplying, that means there should be $5 Billion in economic activity in the city of Ottawa over the coming few years.

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