multiplier

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

This preview shows pages 1–4. Sign up to view the full content.

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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 4

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

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online