Chapter10new multiplier model

Dr. Tufte's ECON 2020 PowerPoint slides to accompany Colander's text.

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Chapter 10. The Multiplier Model

Do changes in spending have a larger or smaller effect than might be naively expected?

10A. The Multiplier Model

10B. Determining the Equilibrium Level of Aggregate Income

10C. The Multiplier Model in Action

10D. Fiscal Policy in the Multiplier Model

10E. Limitations of the Multiplier Model


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10A. The Multiplier Model

What does it mean to say that this model is quantitative, and the model in Chapter 9 wan qualitative?

What does the multiplier model assume is fixed or constant?

10A.1. Aggregate Production

10A.2. Aggregate Expenditures

10A.3. Autonomous and Induced Expenditures


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10A.1. Aggregate Production

How do we graph this? In what space?

Why is this shown as a 45 degree line?


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10A.2. Aggregate Expenditures

Where have we discussed these components before?


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10A.3. Autonomous and Induced Expenditures

What are the two main classes of expenditures?

How do we graph aggregate expenditures?

Which class corresponds to the intercept and which to the slope?

What is the special name for the slope?What is the primary component of that slope?

What causes aggregate expenditures to shift?


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10B. Determining the Equilibrium Level of Aggregate

IncomeAre the two lines on the graph showing

possibilities or what really happens?

10B.1. The Multiplier Equation

10B.2. The Multiplier Process

10B.3. The Circular Flow Model and the Intuition behind the Multiplier Process


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10B.1. The Multiplier Equation

What is the formula for the multiplier?

What happens to the multiplier as the MPC changes?

Is MPC likely to change? Through time? Across countries?


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10B.2. The Multiplier Process

How do firms recognize that production is “out of line” with income?

How do they respond?

Does that eliminate the problem completely? If not, then what happens?


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10B.3. The Circular Flow Model and the Intuition behind the

Multiplier ProcessWhat is another formula for the multiplier

(given in class, not in the text)?

What are injections and leakages, and why are they important?


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10C. The Multiplier Model in Action

10C.1. The Steps of the Multiplier Process

10C.2. Examples of the Effects of Shifts in Aggregate Expenditures


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10C.1. The Steps of the Multiplier Process

What happens to the size of the steps as time goes forward?

Where does that progression end? How many steps does that take?

Does the number of steps change as the MPC changes? If not, what does change?


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10C.2. Examples of the Effects of Shifts in Aggregate

Expenditures

What is the paradox of thrift (see Chapter 9)?

This is an example of what philosophical problem (not mentioned in the text)?


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10D. Fiscal Policy in the Multiplier Model

10D.1. Fighting Recession: Expansionary Fiscal Policy

10D.2. Fighting Inflation: Contractionary Fiscal Policy


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10D.1. Fighting Recession: Expansionary Fiscal Policy

What two tools does the government have to conduct expansionary fiscal policy?

Are there really two shifts in aggregate demand (as shown in Figure 10-10), or is it one big shift that can be broken into two components?


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10D.2. Fighting Inflation: Contractionary Fiscal Policy

What two tools does the government have to conduct contractionary fiscal policy?

Are there really two shifts in aggregate demand (as shown in Figure 10-10), or is it one big shift that can be broken into two components?


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10E. Limitations of the Multiplier Model

Is anything in economics ever easy? Is that because people’s behavior is difficult to describe?

10D.1. The Multiplier Model Is Not a Complete Model of the Economy

10D.2. Shifts Are Not as Great as Intuition Suggests

10D.3. The Price Level Will Often Change in Response to Shifts in Demand


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10E. Limitations of the Multiplier Model (continued)

10D.4. People’s Forward-Looking Expectations Make the Adjustment Process Much More Complicated

10D.5. Shifts in Expenditures Might Reflect Desired Shifts in Supply and Demand

10D.6. Expenditures Depend on Much More Than Current Income


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10E.1. The Multiplier Model Is Not a Complete Model of the

Economy

What’s missing from the multiplier model?


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10E.2. Shifts Are Not as Great as Intuition Suggests

Are autonomous expenditures a broad idea, where we could place just about any change in spending?


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10E.3. The Price Level Will Often Change in Response to

Shifts in DemandWhat did we assume was fixed in this model?

If it isn’t fixed, how will the multiplier process change?


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10E.4. People’s Forward-Looking Expectations Make the Adjustment Process Much More

Complicated

Does the multiplier model assume that everyone in the chain of expenditures will spend the money?

Why wouldn’t they? What if they don’t?


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10E.5. Shifts in Expenditures Might Reflect Desired Shifts in

Supply and DemandIs the definition of autonomous expenditures

consistent with reality?

Could expenditures change in ways that appear autonomous (on the surface), but are really not autonomous?


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10E.6. Expenditures Depend on Much More Than Current

IncomeDoes your spending depend on your current income

only?What other form of income does your spending

depend on? Is that form smoother or more volatile than your

current income? Would you always respond in the way described if

you didn’t exclusively focus on current income?

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Chapter10new multiplier model