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Unformatted text preview: Expenditure Multiplier ISLM Model = 1
1−mpc > 1, the expenditure multiplier = a + mpc × (Y − T ) + I + G
mpc × T
1 − mpc
1 − mpc = C +I +G An increase in government spending leads to an even larger
increase in output ∆Y
∆G ⇔Y ⇔Y Y Aggregate demand: Now suppose there is a government, i.e. G > 0 and T > 0. Government’s Role Aggregate Output ...
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- Fall '08