19 THE CROWDING OUT EFFECT

19 THE CROWDING OUT EFFECT - SECTION 18.3 HOW THE MAGNITUDE...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
SECTION 18.3: HOW THE MAGNITUDE OF THE MULTIPLIER IS INFLUENCED BY THE CROWDING OUT EFFECT AND INCOME TAXES THE MULTIPLIER ANALYSIS PRESENTED THUS FAR OVERSTATES THE MAGNITUDE OF THE MULTIPLIER. THUS, THE MULTIPLIER ANALYSIS PRESENTED THUS FAR OVERSTATES THE POWER OF FISCAL POLICY. TWO FACTORS WHICH REDUCE THE SIZE OF THE MULTIPLIER: 1. THE CROWDING OUT EFFECT 2. TAXES
Background image of page 1

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

View Full DocumentRight Arrow Icon
THE CROWDING OUT EFFECT The tendency for increases in government spending to cause offsetting reductions in spending in the private sector. THE CROWDING OUT EFFECT AS A RESULT OF DISPLACED PRIVATE SPENDING EXAMPLE: Suppose the government provides funding for a new sports arena. It would appear that this increase in autonomous government spending would lead to a large multiplier effect and a large increase in total output. BUT Suppose that, in the absence of the government funding, the same arena would have been built using funds provided by the private sector. In this situation, there is no net gain as a result of the increase in autonomous spending by the
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/07/2008 for the course ECON 0110 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

Page1 / 3

19 THE CROWDING OUT EFFECT - SECTION 18.3 HOW THE MAGNITUDE...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online