Chapter 28 The Multiplier Model

Chapter 28 The Multiplier Model - Chapter 28: The...

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Chapter 28: The Multiplier Model Multiplier model is a model that emphasized the effect of fluctuations in aggregate demand, rather than the price level. Takes into account of the dynamics of fluctuation in the economy that AS/AD cannot calibrate Aggregate production is the total amount of final goods and services produced in every industry in an economy o Represented by a 45 degree line Aggregate expenditure refers to the amount of spending on final goods and services in the economy. Autonomous expenditures are expenditures that do not systematically vary with income. Induced expenditures are expenditures that change as income changes. The slope of an aggregate expenditure curve is equal to the marginal propensity to expend (MPE) o MPE is between 0 to 1 o Aggregation of consumption, investment, gov spending, exports and imports = + AE AE0 mpeY the multiplier model is a historical model most useful for analyzing shifts in autonomous expenditures Multiplier equation
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Chapter 28 The Multiplier Model - Chapter 28: The...

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