AEM_ECON_2300_Lecture_20___Spring_2009

# AEM_ECON_2300_Lecture_20___Spring_2009 - Lecture 20...

This preview shows pages 1–5. Sign up to view the full content.

Lecture 20 1 of Professor David Lee AEM-ECON 2300 “Spending multipliers” — measure total response of national income to policy stimulus Define: m = marginal propensity to import (“leakage”) = s = marginal propensity to save (“leakage”) = Change in imports (at margin) Change in real national income Change in savings (at margin) Change in real national income

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

View Full Document
Lecture 20 2 of Professor David Lee AEM-ECON 2300 In a small open economy, income change stimulated by fiscal policy stimulus (∆G) is: ∆Y = ∆G + (1 - m - s) ∆Y % of income change returned to domestic economy (in short run) Define spending multiplier for small open economy: Y G = 1 ( m + s )
Lecture 20 3 of Professor David Lee AEM-ECON 2300 Example: If m = 0.3, s = 0.2, then (1- m - s) = 0.5 Given initial fiscal stimulus = 100, first round effect = (1- m - s)(100) = 50 second round = (1- m - s)(50) = 25 etc. Overall income change , or a (100 x 2 =) 200 change in total income 2 ) ( 1 = + s m

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

View Full Document
Lecture 20 4 of Professor David Lee AEM-ECON 2300 A country (esp. large country) may also experience increased
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 04/28/2009 for the course AEM 2300 taught by Professor Lee,d.r. during the Fall '06 term at Cornell University (Engineering School).

### Page1 / 13

AEM_ECON_2300_Lecture_20___Spring_2009 - Lecture 20...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online