第24章-----货币和财政政策的影响(1).ppt

* * * * * * * * * * * * * * * * * * * * * * * * * * * * 1. The Multiplier Effect A $20b increase in G initially shifts AD to the right by $20b. The increase in Y causes C to rise, which shifts AD further to the right. Y P AD1 P1 AD2 AD3 Y1 Y3 Y2 $20 billion 0 Marginal Propensity to Consume How big is the multiplier effect? It depends on how much consumers respond to increases in income. Marginal propensity to consume (MPC): the fraction of extra income that households consume rather than save E.g., if MPC = 0.8 and income rises $100, C rises $80. 0 Notation: ?G is the change in G, ?Y and ?C are the ultimate changes in Y and C Y = C + I + G + NX identity ?Y = ?C + ?G I and NX do not change ?Y = MPC ?Y + ?G because ?C = MPC ?Y solved for ?Y 1 1 – MPC ?Y = ?G A Formula for the Multiplier The multiplier 0 The size of the multiplier depends on MPC. e.g., if MPC = 0.5 multiplier = 2 if MPC = 0.75 multiplier = 4 if MPC = 0.9 multiplier = 10 1 1 – MPC ?Y = ?G A Formula for the Multiplier The multiplier A bigger MPC means changes in Y cause bigger changes in C, which in turn cause more changes in Y. 0 Other Applications of the Multiplier Effect The multiplier effect: each $1 increase in G can generate more than a $1 increase in agg demand. Also true for the other components of GDP. Example: Suppose a recession overseas reduces demand for U.S. net exports by $10b. Initially, agg demand falls by $10b. The fall in Y causes C to fall, which further reduces agg demand and income. 0 2. The Crowding-Out Effect Fiscal policy has another effect on AD that works in the opposite direction. A fiscal expansion raises r, which reduces investment, which reduces the net increase in agg demand. So, the size of the AD shift may be smaller than the initial fiscal expansion. This is called the crowding-out effect. 0 How the Crowding-Out Effect Works Y P M Interest rate AD1 MS MD2 MD1 P1 r1 r2 A $20b increase in G initially shifts A