120 THE GENERAL THEORY OF EMPLOYMENT BK. III

will reduce their marginal efficiency to the private in-vestor, and this will require an actual fall in the rate ofinterest to offset it.

(ii) With the confused psychology which often pre-vails, the Government programme may, through itseffect on “confidence”, increase liquidity-preferenceor diminish the marginal efficiency of capital, which,again, may retard other investment unless measuresare taken to offset it.

(iii) In an open system with foreign-trade relations,some part of the multiplier of the increased investmentwill accrue to the benefit of employment in foreigncountries, since a proportion of the increased consump-tion will diminish our own country’s favourable foreignbalance; so that, if we consider only the effect ondomestic employment as distinct from world employ-ment, we must diminish the full figure of the multiplier.On the other hand our own country may recover aportion of this leakage through favourable reper-cussions due to the action of the multiplier in theforeign country in increasing its economic activity.

Furthermore, if we are considering changes of asubstantial amount, we have to allow for a progressivechange in the marginal propensity to consume, as theposition of the margin is gradually shifted; and hencein the multiplier. The marginal propensity to con-sume is not constant for all levels of employment, andit is probable that there will be, as a rule, a tendencyfor it to diminish as employment increases; when realincome increases, that is to say, the community willwish to consume a gradually diminishing proportionof it.

There are also other factors, over and above theoperation of the general rule just mentioned, which mayoperate to modify the marginal propensity to consume,and hence the multiplier; and these other factors seemlikely, as a rule, to accentuate the tendency of thegeneral rule rather than to offset it. For, in the first