The the expenditures multiplier effect the the change...

The ________ the expenditures multiplier effect, the ________ the change needed in government spending to bring about a given amount of increase in real GDP. Question 12 options: A) larger; larger B) larger; faster C) smaller; smaller D) smaller; larger

Transcript

00:01 Let's take a look at how the multiplier will change for gdp, depending on each of these five scenarios.

00:08 First, let's go over the basic equation for gdp, so we can work with it to interpret each of these different problems.

00:16 So we have our gdp, y, is equal to the aggregate of each of these expenditure categories.

00:24 So we have consumption, plus investment, plus government spending, plus net exports, which is, exports x minus imports m.

00:34 All right.

00:34 So and just a basic review on the multiplier.

00:38 That is basically a rippling effect.

00:40 Let's say if you add a hundred dollars worth of value to the economy, you might actually be able to increase gdp, double that or triple that, depending on its effects in each of these categories.

00:52 Right.

00:52 So let's say that first, an increase in gdp causes an increase in imports.

00:57 So an increase in imports is an increase in m, right? and that's actually going to decrease our net exports overall, right? because it's exports minus imports.

01:07 So if we're decreasing this import, this net exports, that means our multiplier is going to get smaller, right? because we're going to detract that from gdp.

01:17 All right, so next we have an increase in the interest rate.

01:21 So let me reset our gdp equation.

01:25 All right, so now we have an increase in interest rates.

01:27 And that is mainly going to affect consumption, right? so consumers have two choices of what to do with their income.

01:35 They can either save it or spend it, right? or they could borrow even to spend beyond their means.

01:40 So how does the interest rate affect this? well, first, the interest rate is going to encourage more people to save, right? because this higher interest rate, they're going to get a higher return on their investment.

01:51 And so they're going to want to save more.

01:53 And that means they'll spend less, right? the other thing that effects is the market for money, right? so it's going to increase the cost of borrowing because they're going to have to pay it back at a higher rate...

Question

The ________ the expenditures multiplier effect, the ________ the change needed in government spending to bring about a given amount of increase in real GDP. Question 12 options: A) larger; larger B) larger; faster C) smaller; smaller D) smaller; larger

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The the expenditures multiplier effect, the the change needed in government spending to bring about a given amount of increase in real GDP. Question 12 options: A) larger; larger B) larger; faster C) smaller; smaller D) smaller; larger