Chapter28 Additional Insights

Chapter28 Additional Insights - Chapter 28: The Multiplier...

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Chapter 28: The Multiplier Model {Note: In this chapter, please read the main chapter material. You may skip Appendix A, but Appendix B could be useful.} The multiplier model is a model that explains Keynes’ theory of macroeconomic interaction. It is a digression from the standard market analysis of supply and demand (even at the aggregate level). Recall: o In a market analysis, the focus is on the relationship between quantity and price. Graphically, quantity is represented on the horizontal axis and price is represented on the vertical axis. Thus, aggregate demand shows the relationship between price level and aggregate expenditures on all goods and services in an economy (measured in dollar value). The aggregate supply curve shows the relationship between price level and the dollar value of all goods and services in an economy that producers are willing to produce and sell. o In Keynes’ analysis, he maintains that prices are slow to adjust in the short run. Rather, producers respond by adjusting quantity. Thus, the short run section of the AS curve is not very steeply sloped…in fact, it is relatively “flat”. In the extreme,
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This note was uploaded on 12/03/2011 for the course ECON 101 taught by Professor Smith during the Fall '11 term at North Shore Community College.

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Chapter28 Additional Insights - Chapter 28: The Multiplier...

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