Chapter 10. The Multiplier Model

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Chapter 10. The Multiplier Model

• Do changes in spending have a larger or smaller
  effect than might be naively expected?
• 10A. The Multiplier Model
• 10B. Determining the Level of Aggregate Income
• 10C. The Multiplier Model in Action
• 10D. Limitations of the Multiplier Model

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10A. The Multiplier Model

• What does it mean to say that this model is
  quantitative, and the model in Chapter 9 wan
  qualitative?
• What does the multiplier model assume is fixed or
  constant?
• 10A.1. Aggregate Production
• 10A.2. Aggregate Expenditures

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10A.1. Aggregate Production

• How do we graph this? In what space?
• Why is this shown as a 45 degree line?

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10A.2. Aggregate Expenditures

• What are the two main classes of expenditures?
• How do we graph aggregate expenditures?
• Which class corresponds to the intercept and
  which to the slope?
• What is the special name for the slope?

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10B. Determining the Level of Aggregate Income

• Are the two lines on the graph showing
  possibilities or what really happens?
• 10B.1. The Multiplier Equation
• 10B.2. The Multiplier Process
• 10B.3. The Circular Flow Model and the Intuition
  behind the Multiplier Process

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10B.1. The Multiplier Equation

• What is the formula for the multiplier?
• What happens to the multiplier as the MPC
  changes?
• Is MPC likely to change? Through time? Across
  countries?

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10B.2. The Multiplier Process

• How do firms recognize that production is out of
  line with income?
• How do they respond?
• Does that eliminate the problem completely? If
  not, then what happens?

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10B.3. The Circular Flow Model and the Intuition
behind the Multiplier Process

• What is another formula for the multiplier?

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10C. The Multiplier Model in Action

• 10C.1. The Steps of the Multiplier Process
• 10C.2. Examples of the Effects of Shifts in
  Aggregate Expenditures

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10C.1. The Steps of the Multiplier Process

• What happens to the size of the steps as time
  goes forward?
• Where does that progression end? How many steps
  does that take?
• Does the number of steps change as the MPC
  changes? If not, what does change?

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10C.2. Examples of the Effects of Shifts in
Aggregate Expenditures

• What is the paradox of thrift?
• This is an example of what philosophical problem?

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10D. Limitations of the Multiplier Model

• Is anything in economics ever easy? Is that
  because peoples behavior is difficult to
  describe?
• 10D.1. The Multiplier Model Is Not a Complete
  Model of the Economy
• 10D.2. Shifts Are Not as Great as Intuition
  Suggests
• 10D.3. The Price Level Will Often Change in
  Response to Shifts in Demand

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10D. Limitations of the Multiplier Model
(continued)

• 10D.4. Peoples Forward-Looking Expectations
  Make the Adjustment Process Much More Complicated
• 10D.5. Shifts in Expenditures Might Reflect
  Desired Shifts in Supply and Demand
• 10D.6. Expenditures Depend on Much More Than
  Current Income

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10D.1. The Multiplier Model Is Not a Complete
Model of the Economy

• Whats missing from the multiplier model?

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10D.2. Shifts Are Not as Great as Intuition
Suggests

• Are autonomous expenditures a broad idea, where
  we could place just about any change in spending?

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10D.3. The Price Level Will Often Change in
Response to Shifts in Demand

• What did we assume was fixed in this model?
• If it isnt fixed, how will the multiplier
  process change?

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10D.4. Peoples Forward-Looking Expectations
Make the Adjustment Process Much More Complicated

• Does the multiplier model assume that everyone in
  the chain of expenditures will spend the money?
• Why wouldnt they? What if they dont?

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10D.5. Shifts in Expenditures Might Reflect
Desired Shifts in Supply and Demand

• Is the definition of autonomous expenditures
  consistent with reality?
• Could expenditures change in ways that appear
  autonomous (on the surface), but are really not
  autonomous?

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10D.6. Expenditures Depend on Much More Than
Current Income

• Does your spending depend on your current income
  only?
• What other form of income does your spending
  depend on?
• Is that form smoother or more volatile than your
  current income?
• Would you always respond in the way described if
  you didnt exclusively focus on current income?