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Principles to be Learned
Principles to be Learned

... A change in the price level is reflected by a movement along the aggregate demand curve. Factors that can shift aggregate demand are: consumption and investment spending, government expenditures and taxes, and a change in the money supply. The short-run aggregate supply curve depicts the relationshi ...
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... expecting real income to rise over time, it may be desirable to smooth housing consumption by allocating a higher share of income to housing early in life. Consider the income profile of a 25-yearold college graduate who earns $50,000 a year (the median income is slightly lower). On average, this in ...
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View PDF - The Earth Institute

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... as budget deficits and the credit expansion continued to grow even after the announcement of the stabilization programs. Monetary disequilibrium models are useful to explain interactions in these economies where the major source of disturbances is the disequilibrium in the money market. With these ...
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Managing-in-a-Global-Economy-1st-Edition-Marthinsen-Test-Bank

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Fiscal multiplier

In economics, the fiscal multiplier (not to be confused with monetary multiplier) is the ratio of a change in national income to the change in government spending that causes it. More generally, the exogenous spending multiplier is the ratio of a change in national income to any autonomous change in spending (private investment spending, consumer spending, government spending, or spending by foreigners on the country's exports) that causes it. When this multiplier exceeds one, the enhanced effect on national income is called the multiplier effect. The mechanism that can give rise to a multiplier effect is that an initial incremental amount of spending can lead to increased consumption spending, increasing income further and hence further increasing consumption, etc., resulting in an overall increase in national income greater than the initial incremental amount of spending. In other words, an initial change in aggregate demand may cause a change in aggregate output (and hence the aggregate income that it generates) that is a multiple of the initial change.The existence of a multiplier effect was initially proposed by Keynes student Richard Kahn in 1930 and published in 1931. Some other schools of economic thought reject or downplay the importance of multiplier effects, particularly in terms of the long run. The multiplier effect has been used as an argument for the efficacy of government spending or taxation relief to stimulate aggregate demand.In certain cases multiplier values less than one have been empirically measured (an example is sports stadiums), suggesting that certain types of government spending crowd out private investment or consumer spending that would have otherwise taken place. This crowding out can occur because the initial increase in spending may cause an increase in interest rates or in the price level. In 2009, The Economist magazine noted ""economists are in fact deeply divided about how well, or indeed whether, such stimulus works"", partly because of a lack of empirical data from non-military based stimulus. New evidence came from the American Recovery and Reinvestment Act of 2009, whose benefits were projected based on fiscal multipliers and which was in fact followed - from 2010 to 2012 - by a slowing of job loss and private sector job growth.
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