The demand side: the nucleus of the SM model

The supermultiplier model explains the equilibrium level of output and its growth rate as a (super)multiple of proper autonomous demand and its expected growth rate. It has been considered the most Keynesian of Keynesian growth models because demand is the driving force of the economy both in the short and the long term. The supermultiplier of a private and closed economy may be formulated in different ways: SM = 1/1 - c - h = 1/1 - c - k·γ = 1/σ = 1/σ' The steps to arrive to the SM are: (1) induced demand or dragging effect (c+h); (2) Uncommitted income (1-c-h=σ), i.e., the income not devoted to induced demand; (3) Income-set-aside by those planning to purchase the goods included in the autonomous demand vector. It coincides with σ but focuses on the particular ways of people and institutions to collect the means of payments. Contrary to usual presentations, our SM is a stable and stabilising mechanism. This does not imply that market economies are stable. We only suggest that the seeds of instability are not in the multiplier but in the “multiplicand” (the vector of proper autonomous demand).