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MSU EC 202 - The Multiplier

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EC202 1nd Edition Lecture 27 Outline of Last Lecture I. Planned expenditures and outputOutline of Current Lecture II. The multiplierIII. Stabilization IV. Government policyCurrent Lecture-the multiplier-income-expenditure multiplier-the effect of a one-unit change in autonomous planned expenditure on short-run equilibrium output-an initial change in spending -leads to a larger change in short-run equilibrium output-income-expenditure multiplier-larger change in output -caused by induced changes in planned expenditures-when output increases consumption demand increases-total increase in planned expenditures-original autonomous increase-induced increase occurring when Y increases -stabilization-the Keynesian model says that recessions are caused by insufficient aggregate spendingThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.-implying that policymakers must find ways to increase aggregate demand (planned expenditures)-stabilization policies-government policies that are used to affect aggregate demand, with the objective of eliminating output gaps-monetary policy-fiscal policy-government policy-monetary policy: decisions on the size of the money supply-fiscal policy: decisions about the government’s budget-government spending-government revenues-fiscal policymakers also determine the level of-tax collections-payments from the private sector to the government-transfer payments-payments from the government to the private sector (e.g., welfare, socialsecurity payments)-using taxes and/or transfers affects PAE indirectly by changing disposable income-increase in disposable income-decrease taxes or increase transfers-decrease in disposable income-increase taxes or decrease transfers-disposable income (Yd) changes-consumption expenditures change-MPC times change in Yd-then induced expenditures


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MSU EC 202 - The Multiplier

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