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The Simple Spending Multiplier (Autonomous Expenditures Multiplier)

The Simple Spending Multiplier (Autonomous Expenditures Multiplier). A CHANGE IN AUTONOMOUS PLANNED. SPENDING (AUTO. C, PLANNED I,. G, or NET EXPORTS) WILL RESULT IN AN EVEN LARGER CHANGE. IN EQUILIBRIUM GDP FOR A GIVEN PRICE LEVEL. THAT CHANGE IN EQUILIBRIUM GDP IS.

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The Simple Spending Multiplier (Autonomous Expenditures Multiplier)

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  1. The Simple Spending Multiplier (Autonomous Expenditures Multiplier)

  2. A CHANGE IN AUTONOMOUS PLANNED SPENDING (AUTO. C, PLANNED I, G, or NET EXPORTS) WILL RESULT IN AN EVEN LARGER CHANGE IN EQUILIBRIUM GDP FOR A GIVEN PRICE LEVEL. THAT CHANGE IN EQUILIBRIUM GDP IS EQUAL TO THE MULTIPLIER X THE CHANGE IN PLANNED AUTONOMOUS SPENDING.

  3. Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 600 900 0 500 500 600 1650 1000 500 500 600 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  4. G has changed by +500 Investment (Planned) GovernmentPurchases NetExports C GDP 500 600 1000 900 0 500 600 1000 1650 1000 500 600 1000 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  5. G has changed by +500 Investment (Planned) GovernmentPurchases NetExports C GDP 500 600 1000 900 0 500 600 1000 1650 1000 500 600 1000 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 +2000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  6. Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 600 900 0 500 500 600 1650 1000 500 500 600 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  7. Planned I has changed by -250 Investment (Planned) GovernmentPurchases NetExports C GDP 500 350 500 900 0 500 350 500 1650 1000 500 350 500 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  8. Planned I has changed by -250 Investment (Planned) GovernmentPurchases NetExports C GDP 500 350 500 900 0 500 350 500 1650 1000 500 350 500 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 -1000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  9. Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 600 900 0 500 500 600 1650 1000 500 500 600 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  10. Auto C.has changed by -500 Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 400 600 0 500 500 600 1150 1000 1900 500 500 600 2000 2650 3000 3400 4000 4150 5000 4900 6000 5650 7000 6400 8000 7150 9000 7900 10000 8650 11000 9400 12000 10150 13000 10900 14000

  11. Auto C.has changed by -500 Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 400 600 0 500 500 600 1150 1000 1900 500 500 600 2000 2650 3000 3400 4000 4150 5000 4900 6000 5650 -2000 7000 6400 8000 7150 9000 7900 10000 8650 11000 9400 12000 10150 13000 10900 14000

  12. 1 MULTIPLIER = MPS 1 MULTIPLIER = .25 4 MULTIPLIER =

  13. STANDARD SETUP CHANGE CHANGE IN EQUIL. GDP MULT. X = PLANNED AUTO. SPENDING

  14. I PREDICT THAT IF G GOES UP BY $500, EQUILIBRIUM GDP WOULD CHANGE BY 4 X (+500) OR 2000 + (NOTICE THE PLUS SIGN TELLS ME EQUILIBRIUMGDP IS RISING )

  15. Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 600 900 0 500 500 600 1650 1000 500 500 600 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  16. G has changed by +500 Investment (Planned) GovernmentPurchases NetExports C GDP 500 600 1000 900 0 500 600 1000 1650 1000 500 600 1000 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 +2000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  17. ROUND 1: New G spending of $500 … generates new income of $500 ROUND 2: New income of $500 generates new induced consumption of .75 times $500 or $375. The new consumption of $375 generates new income of $375. ROUND 3: New income of $375 generates new induced consumption of .75 times $375 or $281.25. The new consumption of $281.25 generates new income of $281.25. ROUND 4: New income of $281.25 generates new induced consumption of .75 times $281.25 or $210.937. The new consumption of $210.937 generates new income of $210.937. ………. And on and on.The rounds will eventually get so small that they disappear. All rounds add up to the $2000 change in equilibrium GDP.

  18. I PREDICT THAT IF PLANNED I FELL BY $250, EQUILIBRIUM GDP WOULD CHANGE BY 4 X (-250) OR $1000 - (NOTICE THE MINUS SIGN TELLS ME EQ. GDP IS FALLING )

  19. Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 600 900 0 500 500 600 1650 1000 500 500 600 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  20. Planned I has changed by -250 Investment (Planned) GovernmentPurchases NetExports C GDP 500 350 500 900 0 500 350 500 1650 1000 500 350 500 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 -1000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  21. PREDICTION!!!!!!!! IF AUTONOMOUS CONSUMPTION FALLS BY $500, EQUILIBRIUM GDP WILL CHANGE BY 4 X -$500 OR BY -2000 (AGAIN NOTE THAT MINUS SIGN TELLS US EQ. GDP IS FALLING )

  22. Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 600 900 0 500 500 600 1650 1000 500 500 600 2400 2000 3150 3000 3900 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  23. Auto C.has changed by -500 Investment (Planned) GovernmentPurchases NetExports C GDP 500 500 400 600 0 500 500 600 1150 1000 1900 500 500 600 2000 2650 3000 3400 4000 4150 5000 4900 6000 5650 -2000 7000 6400 8000 7150 9000 7900 10000 8650 11000 9400 12000 10150 13000 10900 14000

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