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Spending multipliers

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  • 1. 1. If a person’s MPC is .9, which is true: A. They spend more than they earn B. If they get a raise they will spend about 90% of it C. If they get a raise they will save 90% of it D. This person spends an average of 90% of their income 2. What is the APC formula? 3. Why is APC the inverse of APS? 4. If you could make yourself richer but have your grandkids pay for it, would you?
  • 2. Population boom 1950s Draw short run changes INVISIBLE HAND WILL FIX IT
  • 3. New technology for firms to build goods Draw changes INVISIBLE HAND WILL FIX IT
  • 4. Housing “bubble” of 2000’s Draw changes INVISIBLE HAND WILL FIX IT
  • 5. Panics 1797 1815-1821 1873 1893 1907 Classical response….. Karl Marx watched and commented QE Assignment: Small timeline of these recessions for my wall. Dates, cause, life during, picture
  • 6. Pronounced “Canes” Founder of “Keynesianism” Opposed to “Classical ideas” Great Depression Rock Star of Econ “In the LR, we are all dead”
  • 7. US GDP only growing at 1.7 % Congress wants to boost SRAD and GDP Which policy would increase AD by the largest amount? Policy A: lower income tax rates by 5 % Policy B: Increase spending by 5 % (ask Fed to increase money supply by 5% to offset deficit) Policy C: Obama’s plan
  • 8. Government spending actually can increase SRAD by more than spending Fiscal Multiplier = 1 / (1 – MPC) Trade off? Stossel clip leakage
  • 9. Larger effect in SR? LR problem?
  • 10.  Poster explaining active Keynesian stabilization policies pages 773-778 • Pictures, maybe a graph, explanation of stabilizers, multiplier effect  Mankiw, Ch34 Problems: 4, 5, 7, 9, 10, 13  Find 4 + bloggers discussing fiscal spending, cite the source and evaluate their ideas (what is their view of the spending multiplier, agree/disagree & why). (Mises.org, planet money, lewrockwell.com, marginal revolution, Mankiw, Krugman, WSJ, Café Hayek)

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