ECON-UA 1 Lecture 21: 21
9 Nov 2016
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Automatic destabilisers (behaviour of stock prices, home prices) cause multiplier > Multiplier = 10 some spending (autonomous or consumption) b. (1/1-mpc multiplier: 10) gdp ,000b (gdp ,500b) Other stu (that a ects stock prices or home prices) happens. A ip b (spending going down in addition to the b) it will have its own multiplier (goes back to 1/1-mpc multiplier) In this example, overall multiplier = gdp/ initial spending = 1,500b/100b = 15 (new multiplier) *stabilisers more powerful than destabilisers today: expenditure multiplier is about 1. 5-2. 5. We"ll often pretend that the mpc = 0. 6 (truth is around 0. 9), which allows us to use 1/(1-mpc) = 1/(1-0. 6) = 1/0. 4 = 2. 5 this gives us a realistic multiplier. Role of saving more we save = more funds for investment = increase productivity (good for long run economic growth) **disposable income shifts along consumption curve autonomous spending shifts the curve up and down. Classical view: (more we save, more funds for investment)
