Chapter 3 The magic and black magic transmission mechanism
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Chapter 3 explains three elements in the transmission mechanism of economic magic and black magic. The book maintains that the economy is infinitely complex. This chapter attempts to explain this complexity. Any cause of magic or black magic will change output and jobs in two directions. Say’s Law and Keynes’ Law generate the well-known ‘multiplier effect’, whereby any initial exogenous change in spending alters incomes and spending downstream over and over again. Leontief’s Law says that an initial substantial change in the production of good X will alter outputs upstream in industries that produce the nuts and bolts and intermediate products used to produce X. This, in turn, affects the outputs of the raw materials used to make the nuts and bolts and intermediate products, as well as the tools, equipment, and structures used in all this production. All of this will influence transportation, banking, insurance, and other services used by the affected firms. In the limit, Leontief’s Law implies that any substantial change in the output of good X can alter the output of every other good in the economy.

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