comments on second midterm

comments on second midterm - Some Comments on the Second...

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Some Comments on the Second Midterm Q1. The difference between the multiplier found in Q1 and that found in class is due to the . To see this 9 ] term in the investment equation the absence of the not .< term suppose that the investment equation includes both terms: MœD ] 9 .< . In this case, the level of giving spending balance is ]] œ +,X  K ",Ð">Ñ E D . < 9 implying an autonomous spending multiplier of as was the case in Q1. The absence of the " ",Ð">Ñ 9 term is, however, responsible for the ineffectiveness of monetary policy in the economy under consideration in Q1. Absent any effect of on spending there is no way < for an expansionary monetary policy to increase aggregate demand. The difference in the ASM is not germane to this issue as both monetary and fiscal policy operate though the same ASM – monetary policy seeks to change the interest-sensitive parts of spending while fiscal policy changes government spending (or taxes) but after that both are dependent on the same multiplier for their full effect on aggregate demand.
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comments on second midterm - Some Comments on the Second...

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