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LUC / OTHER / ECON 202 / What is the expenditures multiplier effect?

What is the expenditures multiplier effect?

What is the expenditures multiplier effect?

Description

School: Loyola University Chicago
Department: OTHER
Course: Intro to Macroeconomics
Term: Fall 2017
Tags:
Cost: 25
Name: Econ 202 week 11
Description: Week 11 class notes
Uploaded: 11/13/2017
7 Pages 42 Views 1 Unlocks
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11/7/17Don't forget about the age old question of There is only one way that co2 can be turned into organic c. what is it?

We also discuss several other topics like What does the root locus plot show?

Oct 2017 Unemployment rate 4.1%

*Using same number chart

c = ര + .75y

If you want to learn more check out What are the three main reasons why we study statistics?
Don't forget about the age old question of What do you call the production of somatic cells?

c = 35 + .75y

Don't forget about the age old question of When did the paleozoic era end?

Ia = Ip +Iup

If y = 140Don't forget about the age old question of Where does the 50% of mcdonald’s revenue or income come from?

c + 1 = 150

Iup = -10

Ia = 10 - 10 = 0

S = Ia

If y = 220

c + 1 = 210

Iup = +10

Ia = 10 + 10 = 20 = S

Go with scenarios at end of last page

If y = 180

c + 1 = 180

Iup = 0

Ia = 10 + 0 = S

When aggregate expenditures are greater than GDP, saving is less than planned investment

*vice versa

What if Ip changed to 20?

        On chart, equilibrium level moves to 220

↑ 1 by 10, ↑ GDP by 40

y = c + 1        now??

+40        + 10

If +30

b/c C = 35 + .75y

+30                +40

Expenditures multiplier effect

Multiplier =

Change in GDP = multiplier x initial change in spending

m = = = = 4

Autonomous expenditures = independent of income (all besides c)

Net exports

Ip = 10

     10     20

If -20

y = GDP

-C

S

C +1

C + 1 + Xn

xn

➝ 100

110

-10

120

140

100

140

148

0

150

170

130

180

170

10

180

200

160

220

200

20

210

230

190

➝260

230

30

240

260

220

300

260

40

270

290

250

Government spending

      10    0      30

y = GDP

C + 1

C + 1 + Xn + G

100

120

150

140

150

180

➝180

180⇽

210

220

210

240

260

240

270

➝300

270

300⇽

11/9/17

Government taxes

  • Assume government sector raises money with which to make expenditures through a lump sum personal income tax of T
  • Taxes or T = 30 reduces disposable income by 30

* last question on homework

c = 35 + .75 (y - T)

Δc = .75 (-30)

     = -22.50

PI = PI - T = C + S

Δy = m x Δc

Δy = 4 (22.50) = -90

y = 300 -90 = 210 ⇽new equilibrium

Balance budget multiplier - If gov spending & taxes both increase by an equal amount so that the govs budget remains in balance, equilibrium GDP will increased by that same amount

b/c when this happens spending only decreases by 22.50 so difference of 7.50

Multiplier : 7.50 (4) = 30

c = 35 + .75 (y - T)

I = 10 ⇾ y = 180

Xn = 20 ⇾ y = 260

Xn = -20        y = 100

Xn = 0 ⇾ y = 300

T = 30 ⇾ y = 210

How do we get these without using the table?

y = c + 1 + G + Xn

    ↑

c = Co + mpc (y-T)

y = Co + mpc (y-T) + 1 + G + Xn

Y (1 - mpc ) =

Ye = Co - mpc (T) + 1 + G +  Xn ⇽ multiplier

y = 4 (35 + 10) = 180

y = 4 (35 + 10 + 20) = 260

y = 4 (35 + 10 - 20) = 100

y = 4 (35 + 10 + 30) = 300

y = 4 (35 - .75 (30) + 10 + 30) = 210

Ch 13

Fiscal Policy

  • Use of gov spending and/or taxes to affect GDP and unemployment or inflation

Annuals deficit = G - T ⇽ spending more than revenue

Annuals surplus = T - G ⇽ revenue more than spending

Debt = accumulation of deficits minus the surpluses of fud gov over time

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