The multiplier an estimation of the ways in which increased injections affects consumers. Higher level of injections means a more confident consumer base which will purchase more and higher output by firms. This leads to an increase in aggregate demand.

2. What are leakages from the circular flow that reduce the multiplier effect?

A leakage is when households save instead of spend their money. The money therefore does not enter the circulation.

3. Explain the link between the accelerator model and the multiplier.

The accelerator model and the multiplier both say increases in monetary assets and encourages increased spending. Economic injections cause both of these models.

4. What would multipliers for other injections such as export receipts or investment look like? Would they be higher or lower than multipliers for taxation or government spending?

I have no idea but it is more likely that they would be higher for taxation than government spending because it contributes towards more spending.

5. Evaluate the effectiveness of fiscal stimulus to increase the level of economic activity.

Saving seems like a popular option when receiving fiscal stimulus thus making fiscal stimulus irrelevant.

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I disagree with you in regards to your example in question 5. I disagree with you because the stimulus was not extremely effective in reducing the hurt of the recession among consumer like you and I because, for the most part, we chose to save the stimulus money in fear of an increasingly worse recession. However I do agree with you in regards to stimulus helping large companies. This is because they spent the stimulus money after declaring bankruptcy.

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Economists use the Marginal Propensity to Consume to calculate the multiplier while using the formula 1-MRL (Marginal Rate of Leakage). Marginal Propensity of Consumption is the change in consumption versus the change in income.

2. What are leakages from the circular flow that reduce the multiplier effect?

Leakages from the circular flow is money being saved because it will not return to its regular flow when it is pocketed and not spent.

3. Explain the link between the accelerator model and the multiplier.

The accelerator model has the power to change the multiplier. If government spending increases, this is an incentive for firms to purchase more and more investments.

4. What would multipliers for other injections such as export receipts or investment look like? Would they be higher or lower than multipliers for taxation or government spending?

Multipliers for other injections such as export receipts and/or investments would be lower because consumer spending is directly related to income and income is defined by government taxation. They would be higher than multipliers for taxation and government spending though.

5. Evaluate the effectiveness of fiscal stimulus to increase the level of economic activity.

Fiscal stimulus' are often effective in aiding an economy when there is a high unemployment rate and/or low income rate however it is a short term solution and is not effective in the long term if consumers choose not to spend the money. (Example: Stimulus under President Obama, USA which was not spent as much as it was intended to)

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Economists calculate the multiplier by looking at a nations' increase in injections, for example government spending, investments and exports, which result in an increase of the aggregate demand. The higher these injections are, the higher the level of the multiplier, which then yields greater values.

2. What are leakages from the circular flow that reduce the multiplier effect?

Leakages from the circular flow which reduce the multiplier are taxation, public and private savings, and imports; which are all factors that have a negative effet on the output.

4. What would multipliers for other injections such as export receipts or investment look like? Would they be higher or lower than multipliers for taxation or government spending?

As the article states, "…we find that when the GDP expands, less than a third of the increase takes form of private consumption and investment." By this, we can understand that the multiplier of the investment is much lower than that of government spending or taxation. This also has to be seen in the context of the economy, as if for some reason the economy is characterized by a very high rate of interest on investments, people will have the incentive to invest their money, and the multiplier in this case would be really large. Same thing has to be seen in regards to exports, as if a nation is a large exporter, the multiplier for the given nation will be higher than that of a nation which has very little or no exports.

5. Evaluate the effectiveness of fiscal stimulus to increase the level of economic activity.

With a fiscal policy, a nation is able to adjust the levels of the aggregate supply and aggregate demand curves. They can do so by increasing or decreasing either government spending or taxation. Government spending has a positive effect on output, therefore in government spending is increased, the output will be larger, and would increase economic activity. On the other hand taxation has a negative effect on output, and we can see that in the formula (where consumption at time zero is multiplied by the output minus taxes), therefore, if taxes are reduced the output in the end would be larger, increasing the economic activity.

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Why do you think that export receipts or investments would create a higher multiplier than government spending? I decided the same but I was just wondering what your reasoning was for that choice.

Noah

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Economists look at the GDP of a country at any given point. Then once the government has spent some money on the country or given tax cuts to people economists will look at the GDP again. To calculate the multiplier they can figure out how much the GDP has risen relative to each dollar the government spent or gave in tax cuts.

2) What are leakages from the circular flow that reduce the multiplier effect?

The major leakage from the circular flow is due to savings when people receive money back from the tax cuts. If people are worried about the economy’s future, or just want to add a little more money to their retirement plan for example, the money the get back from tax cuts is leaving the economy.

3) Explain the link between the accelerator model and the multiplier.

The accelerator model takes into account investment while the multiplier model takes into account consumption and spending. They are part of the same cycle because an increase in consumption due to government spending will lead to an increase in businesses investing because they have more money and the cycle will revolve around more and more consumption and more and more investment.

4) What would multipliers for other injections such as export receipts or investment look like? Would they be higher or lower than multipliers for taxation or government spending?

I think that exports or investments would result in higher multipliers. It seems like government spending comes from money, which came from taxpayers so the money starts in the US. For exports and investments the money is received from other countries.

5) Evaluate the effectiveness of fiscal stimulus to increase the level of economic activity.

Fiscal stimulus seems to have worked in the US to recover from the recession. The stimulus bill implemented has helped many companies threatened by bankruptcy and some of these businesses are doing well now. GM for example was filing for bankruptcy. The government allocated some of the money to GM and now they are recovering even faster than some people thought and paying the US back sooner than they were expecting. It seems like someone, the government, has to do something to make the people feel secure enough to increase their economic activity.

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Very well done on your comment. In the last question it is good how you put yourself into it which shows you have experience and you know about the Keynesian theory well.

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• As we read from the blog the multiplier is the key component of Keynesian theory. Economists use different formulas to calculate the multiplier. One main method can be by calculating the final change in GDP and divide it by total amount of money the government has spent.

2. What are leakages from the circular flow that reduce the multiplier effect?

• Leakages are referred to the non-consumption use of income. In the circular flow leakages are combined with injections to identify aggregate output. The money saved by consumers which are not spent at all and this leads to the loss of money from the flow which is negative for the firm.

3.Explain the link between the accelerator model and the multiplier.

• The accelerator model is affected by the multiplier significantly because the multiplier will increase governmental spending which will lead to an increase in motivation for businesses to continue to work.

4.What would multipliers for other injections such as export receipts or investment look like? Would they be higher or lower than multipliers for taxation or government spending?

• In my opinion government spending would be higher compared to taxation even thought they both kind of have the same levels, but government spending will affect more.

5.Evaluate the effectiveness of fiscal stimulus to increase the level of economic activity.

• Fiscal policies are used many times especially during economic depressions. Fiscal stimulus stimulates the market by increasing demand significantly. It increases the output

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Your answers are very well developed throughout your comment. I especially liked the part of your answer in question five about making consumers aware of the actions the government is taking. If the consumers know that the government is reducing taxes and that if the consumers spend more money that the recession will slowly fade away, they may feel more incline to spend those extra dollars.

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The first calculate what the GDP of the country is. Soon after the government will do one of two things, either spend money, or cut taxes. After one of these actions is performed they will wait a month and see what the new GDP is. The increase in the GDP will determine the multiplier.

2. What are leakages from the circular flow that reduce the multiplier effect?

The most important leakage from the circular flow is savings. Many people thought that theoretically if the government cut taxes giving consumers extra money, that they would save that money, and therefore the GDP would not increase. This, however, was proven incorrect when finding out that the multiplier was times 3 when taxes were cut.

3. Explain the link between the accelerator model and the multiplier.

The accelerator model takes into account investments when calculating the GDP, while the multiplier takes into account expenditure by all parties such as consumers and the government.

4. What would multipliers for other injections such as export receipts or investment look like? Would they be higher or lower than multipliers for taxation or government spending?

This is a very hard subject to gauge without actually experimenting evidenced by the fact that many did not think tax cuts would produce as high a multiplier as it did. In my opinion export receipts or investments could create higher multipliers than government expenditure; however, a multiplier of 3 seems rather high and hard to reach for other components.

5. Evaluate the effectiveness of fiscal stimulus to increase the level of economic activity.

I am a big believer in the Keynesian theory in that the government must get involved if it wants to revive an economy. By the looks of it, it is very hard to predict what kind of multiplier will arise when the government takes certain actions. I believe they should test every option to see which gets the best multiplier in order to prepare for the future if and when a recession occurs again.

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1. I think that I understand what you mean here, but it is quite vague, you are basically saying that the answer is just there and they have to look at all the factors in the economy and subtract the injections and thats it. If the government is responsible for the starting of the multiplier, shouldnt it be a comparison between what was invested and what was gained?

2. Here I said the same as you did.

3. The accelerator model, according to my research, is actually more or less the multiplier one, except that it is related to businesses and them investing in capital and their production capabilities; this model is caused by the multiplier model, as it is the multiplier that stimulates an increase in production.

4. I understand what you mean, and agree, even though that is not the same answer as I have put down. However what are the opportunity costs the government faces that make so much less valuable when faced to true injections?

5. I once again agree with your answer, but if the leakage factor due to savings shows a higher increase than the one maintained in the circular flow of the economy, your point is really contradicted.

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They measure the GDP for a given year, and see how much the government spent that year by subtracting all other factors then they see how much, in %, of the GDP the government intervention was worth and see hpw much this percentage is worth in money terms.

2.What are leakages from the circular flow that reduce the multiplier effect?

These leakages could come from taxing and savings, if the consumer starts to save up the money, then this money only contributes to that individual and not to the multiplier effect; also the increase in tax means the government obtains more money and less is used that year in the market.

3.Explain the link between the accelerator model and the multiplier.

The accelerator model is much like the multiplier model, except here it is a rush of investment in capital and machinery (businesses). The accelerator model is most likely triggered by the multiplier, as a rise in consumption of a company's products will lead the company to an increase in production, which results in increased investment; because the ,multiplier model is cyclic so will the accelerator, more and more purchases result in more and more investments.

4.What would multipliers for other injections such as export receipts or investment look like? Would they be higher or lower than multipliers for taxation or government spending?

Most likely theyu would be lower, as it is harder to publicize a local market in the global market, than it is whithin itself. If one year there is a fashion trend to buy mexican sombreros outside mexico that will lead to a multiplier in injections where exports increase which results in an investment increase. Unfortunately this trend might stop in a few months and so the effect is lower, as it soon dosappears. Within the local market it is easier to keepthe effect going, as the trend can be publicized further at lower costs.

5.Evaluate the effectiveness of fiscal stimulus to increase the level of economic activity.

On a long term effect it seems to be quite effective, as you can raise the GDP by 3$ with every government $ spent, and this in large quantities over a few years will have quite a large effect. On the other hand, because results are not that large in value, in the short run these results are not so visible and so they do not seem to encourage much production, also the consumer needs to be aware of the change, so that they can alter their habits in the expected way, to meet this GDP rise. Even so it seems like a simple stimulus with a good purpose which is actually effective, and because Macro-economies take time to build, a long term project is a good project.

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5. You said that fiscal stimulus packages are not effective when it does not alter the people's disposition to purchase. How do you think this can be remedied?

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Economists calculate the multiplier by adding up the positive feedback loop of the spending cycle induced by the investment and subtracting leakages such as the amount that went into private savings.

2. What are leakages from the circular flow that reduce the multiplier effect?

A major source of leakage from the circular flow is savings. In a stagnant economy when people get pessimistic, government spending may end up in the vaults by their citizens because they’d like to save up for their uncertain future.

3. Explain the link between the accelerator model and the multiplier.

The accelerator model is simply put, the fundamental concept of the multiplier effect taking full impact in an economy. The injections through government spending will increase consumer income which in turn increases the aggregate demand and therefore increase the national output. These series of events ‘accelerate’ in a cyclical manner resulting in economic recovery.

4. What would multipliers for other injections such as export receipts or investment look like? Would they be higher or lower than multipliers for taxation or government spending?

I think the multipliers for export would be higher than multipliers for government spending because government spending entails an opportunity cost while profit made from exports is a true ‘injection’. Government expenditure needs to derive its budget from a source which will have its funds deprived. If that is not the case, then the government will simply have to borrow money from overseas.

5. Evaluate the effectiveness of fiscal stimulus to increase the level of economic activity.

I agree with the theory that government expenditures will induce a multiplier effect and help raise the economy out of recession. However, I do feel that a stimulus package does have its limitations in that there are potential leakages which could undermine the recovery.

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4. You said that multipliers for both injections as well as taxation or government spending would be quite similar since they’re both equally important and have equally significant impacts on a nation’s circular flow of income. I think differently. I agree that they both are important but since tax is imposed on almost all products within a country so both government spending and taxation are a large amount of money flow. so i think they are little heavier than injections

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