Klein: Short Quiz1. If a person’s MPC is .9, which is true:

A. They spend more than they earnB. If they get a raise they will spend about 90% of it

C. If they get a raise they will save 90% of itD. 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?

On our SRAD/SRAS graphPopulation boom 1950sDraw short run changes

INVISIBLE HAND

WILL FIX IT

On our SRAD/SRAS graphNew technology for firms to build goodsDraw changes

INVISIBLE HAND

WILL FIX IT

On our SRAD/SRAS graphHousing “bubble” of 2000’sDraw changes

INVISIBLE HAND

WILL FIX IT

Other “Great Depressions” in US 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

John M. Keynes(1883-1946)

Pronounced “Canes”

Founder of “Keynesianism”

Opposed to “Classical ideas”

Great Depression Rock Star of Econ “In the LR, we

are all dead”

APC?

2014 Fiscal issue question 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

Government spendingHoover?

But wait………….

Multiplier effect Government spending actually can

increase SRAD by more than spending Fiscal Multiplier = 1 / (1 – MPC)

Trade off? Stossel clip leakage

Fiscal increase by program

Macro goals

Tax decrease vs. Govt spending

Larger effect in SR? LR problem?

Greece Keynesian policies long run disaster

Keynsian Assignment:

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)