Multipliers

Chapter 10 and 13 REVIEW:

MULTIPLIERS

MULTIPLIER

PAGE

LARGER OR SMALLER THAN
THE SIMPLE MULTIPLIER? - WHY?

SIMPLE

p. 200-203 "The Multiplier Effect"

multiplier = 1 / MPS

Complex multiplier

p. 203-205
"How Large is the Actual Multiplier Effect?"

smaller because there are more leakages: (1) saving, (2) spending on imports, and (3) taxes; fiscal policy is less effective

Multiplier w/ changes
in the price level

p. 205 "How Large is the Actual Multiplier Effect?"

smaller than the simple multiplier; fiscal policy is less effective

G spending multiplier

p. 255 "Increased Government Spending"
p. 257 "Decreased Government Spending"

same as the simple multiplier assuming no inflation and no imports

Tax multiplier

p. 256 "Tax Reductions"
p. 258 "Increased Taxes"

one less than the simple multiplier, but negative
tax multiplier =MPC / MPS
less effective than the simple multiplier

Balanced Budget multiplier

p. 256, 258 "Combined Gov/t Spending . . . "

always equals 1, WHY?; less effective than the simple multiplier or the tax multiplier

Multiplier w/ crowding out
(expansionary FP only)

p. 265 "Crowding-Out Effect"

smaller than the simple multiplier; fiscal policy is less effective

Multiplier with supply-side effects

pp. 367-370 "Taxation and Aggregate Supply"

pp. 265-266 "Current Thinking on Fiscal Policy"

larger than the simple multiplier; fiscal policy is more effective

MULTIPLIER	PAGE	LARGER OR SMALLER THAN THE SIMPLE MULTIPLIER? - WHY?
SIMPLE	p. 200-203 "The Multiplier Effect"	multiplier = 1 / MPS
Complex multiplier	p. 203-205 "How Large is the Actual Multiplier Effect?"	smaller because there are more leakages: (1) saving, (2) spending on imports, and (3) taxes; fiscal policy is less effective
Multiplier w/ changes in the price level	p. 205 "How Large is the Actual Multiplier Effect?"	smaller than the simple multiplier; fiscal policy is less effective
G spending multiplier	p. 255 "Increased Government Spending" p. 257 "Decreased Government Spending"	same as the simple multiplier assuming no inflation and no imports
Tax multiplier	p. 256 "Tax Reductions" p. 258 "Increased Taxes"	one less than the simple multiplier, but negative tax multiplier =MPC / MPS less effective than the simple multiplier
Balanced Budget multiplier	p. 256, 258 "Combined Gov/t Spending . . . "	always equals 1, WHY?; less effective than the simple multiplier or the tax multiplier
Multiplier w/ crowding out (expansionary FP only)	p. 265 "Crowding-Out Effect"	smaller than the simple multiplier; fiscal policy is less effective
Multiplier with supply-side effects	pp. 367-370 "Taxation and Aggregate Supply" pp. 265-266 "Current Thinking on Fiscal Policy"	larger than the simple multiplier; fiscal policy is more effective