1. Expenditure multiplier
When the government, company, or individual spends EGP 100, this spending generates a GDP that is a multiple of this number because each recipient of the money spends part of what he received again, adding value every time.
2. Money multiplier
When the CBE injects EGP 100 into the banking sector, the banking sector lends a portion of this money several times until it creates a volume of deposits (money in the form of deposits) times that number. Therefore, the volume of deposits in local currency in Egypt is about 6 times the reserve money that was issued by the CBE.
3. Price multiple
When an investor expects the company to generate excess or economic profit in the future, the stock is trading at a price equal to several times its book value. And this multiplier is what maximizes shareholder wealth.
4. Operating and financial leverage
When operational and financial fixed costs are high relative to total costs due to higher investment in fixed assets and higher debt, the change in net profit becomes sensitive to the change in revenue. If revenues decreased by 10%, for example, net profit decreases by 20%-30%, ie, 2 or 3 times the decrease in revenues.
Why this Matters
Due to the nature of the economic, monetary, and financial systems, the impact of decisions is much larger than its current size, both positively and negatively. The multiplier, whatever its kind, is a blessing in good times and a curse in bad times.
