00:01
So here, let's remember what the basic idea of the multiplier is, right? so the basic idea of the multiplier is that spending increases output, increases other spending, which again, increases output, right? so you have this sort of circular patterns, this virtuous cycle, where, right, imagine the government's hire some people, government spending increases national income, but now those people the government have hired have more income, they buy more food, they go out and do nice things, they buy restaurant meals, they buy golf memberships, whatever they do with their money.
00:38
And now more people have money.
00:39
And there's this sort of virtuous cycle.
00:41
So here, what we have is a increase in the sensitivity of private spending to the interest rate.
00:52
And we're thinking about what's going to happen to the purchases multiplier.
00:57
So the way that i would answer this is, again, i'm not sure what framework you're working in, but i'm thinking about an islm framework.
01:06
If we have an is curve and an lm curve, right, we're thinking about the is curve, right? so more sensitive to r means that we have a flatter is, right? so you're going to have a flatter is curve, when things are more sensitive to r, that is the same change in r generates a bigger movement in y.
01:32
So now let's suppose that, for example, we have an increase in spending, an increase in spending shifts the is curve, right? so we're going to have a shift in the is curve.
01:47
And similarly, a shift in the is curve.
01:52
And you can see that we end up at different places, right, a and b.
01:59
And so my conclusion is, with more sensitivity, sorry, my pen is really dragging here...