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OfflineStatisticons_win
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Registered: 03/20/09
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Governemnt spneding and its effect on the mulitplier.
    #11322792 - 10/26/09 08:33 AM (8 years, 10 months ago)

If real gdp increases at a constant hundred dollars(for the sake of simplicity) relative to changes in consumption+gross investment with 0 government spending and then there is an increase in government spending by 80 dollars but no change in the constant increase of  real gdp at various levels of c+I(gross) in a closed economy then the multiplier has diminished, right?

someone help me please.

thanks.

peace.


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Invisiblememes
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Registered: 01/11/05
Posts: 27,754
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Re: Governemnt spneding and its effect on the mulitplier. [Re: Statisticons_win]
    #11322865 - 10/26/09 09:02 AM (8 years, 10 months ago)

The multiplier is just the amount of times the money is recirculated through the economy.  Since the gov't is doing the initial spending here, without any additional income being mentioned - I would imagine that the addition of one more entity (being the gov't) in the "purchasing time-line" of the money (that spans it's lifetime and encapsulates the multiplier) then the mulitpliier has, in effect, increased.

If I have moeny and then buy gum, and the guy who sold me the gum buys a beer -- the multiplier would be 2 (arbitrarily, for our example).

Now if the gov't gives me that money to buy gum, and then the guy i bought the gum off of buys a beer, then we have a multiplier of 3!


Then again, I just woke up and took my first GB  - but this makes intuitive sense to me :shrug: (I haven't touched multipliers since undergrad)


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OfflineStatisticons_win
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Re: Governemnt spneding and its effect on the mulitplier. [Re: memes]
    #11322892 - 10/26/09 09:21 AM (8 years, 10 months ago)

good morning.


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