multiplier

multiplier - The Keynesian Multiplier Mark L. J. Wright...

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The Keynesian Multiplier Mark L. J. Wright February 17, 2009 Abstract These notes give an algebraic, and a geometric, proof of the size of the mul- THE G MULTIPLIER: GEOMETRIC SERIES Suppose government spends G: Then this creates an extra G of income, of which mpc G is spent on consumption. But this creates an extra mpc G of income, of which ( mpc ) 2 G is consumed, etc etc. G + mpc G + ( mpc ) 2 G + ( mpc ) 3 G + :::: G 1 + mpc + ( mpc ) 2 + ( mpc ) 3 + ::: ± = 1 1 mpc G: THE G MULTIPLIER: A GEOMETRIC PROOF See attached scanned diagram. There are a few key steps: 1
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1. The vertical distance between the two expenditure lines (in green and red) is G at every point, because this is how much expenditure was increased. 2. Using the Y + E line, which is the 45-degree line, we can work out how much Y is on the vertical axis. 3. The slope of the expenditure line is the
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This note was uploaded on 04/11/2009 for the course ECON 102 taught by Professor Serra during the Winter '08 term at UCLA.

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multiplier - The Keynesian Multiplier Mark L. J. Wright...

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