Government Spending Multipliers under the Zero Lower Bound ...
Spending multipliers
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Klein: Short Quiz 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?
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Transcript of Spending multipliers
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)
