ECSENOMICS Chapter 24 The Multiplier model McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 24 The Multiplier Model
ECSENOMICS National Output Determines the S Levels of Consumption and Saving T-174 Figure 24-1 (a)Consumption Function (b)Saving Function C GDP 500 Gross domestic product 45° GDP 500 Gross domestic product McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. National Output Determines the Levels of Consumption and Saving T-174 Figure 24-1
ECSENOMICS The Equilibrium Level of National Output Is Determined by Intersection of Saving and Investment schedules 1-175 Figure 24-2 OP S Equilibrium point e s GDP B S Gross domestic product Q McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. The Equilibrium Level of National Output Is Determined by Intersection of Saving and Investment Schedules T-175 Figure 24-2
ECSENOMICS In the Expenditure Approach, Equilibrium GDP Level Is found at the Intersection of the C+/ Schedule with the 45 Line T-176 Figure 24-3 C+I s 45 GDP D B P Gross domestic product McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. In the Expenditure Approach, Equilibrium GDP Level Is Found at the Intersection of the C + I Schedule with the 45º Line T-176 Figure 24-3
ECSENOMICS Each Dollar of Investment Is C"Multiplied"into 3 Dollars of Output 1-177 Figure 24-4 QP S 400 300 100 200 GDP 3,000 -100 3,500—4,000 100200 Q Gross domestic product(billions of dollars) McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Each Dollar of Investment Is “Multiplied” into 3 Dollars of Output T-177 Figure 24-4
ECSENOMICS How the Multiplier Model Fits the AS-AD Approach 1-178 Figure 24-5 (a) Mul tiplier Model (b) AS-AD Approach Potential GDP Potential AD GDP C+1 彐 GDP Q Q Real GDP Real GDP McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. How the Multiplier Model Fits the AS-AD Approach T-178 Figure 24-5
ECSENOMICS Taxes Reduce Disposable Income and Shift CC Schedule to the right and down 1-179 Figure 24-6 4.000 3.500 3.000 45 3.000 Gross domestic product (billions of dollars) McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Taxes Reduce Disposable Income and Shift CC Schedule to the Right and Down T-179 Figure 24-6
ECSENOMICS Government Purchases Add on Just like t Investment to Determine Equilibrium GDP 1-180 Figure 24-7 Q C+1+G 4,000 Government purchases 3.500 C+1+G 3.000 GDP 3.500 Gross domestic product billions of dollars) McGraw-Hilllrwin Copyright C 2001 The McGraw-Hill Companies, Inc. All rights reserved
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Government Purchases Add On Just like Investment to Determine Equilibrium GDP T-180 Figure 24-7
ECSENOMICS The Effect of Higher G on Output 1-181 Figure 24-8 GDP 3.600 3.900 Gross domestic product(billions of dollars) McGraw-Hilllrwin Source: U.S. Department of Commerce
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. The Effect of Higher G on Output T-181 Figure 24-8 Source: U.S. Department of Commerce
ECSENOMICS Output during Wartime 1-182 Figure 24-9 World War II 140 Vietnam War Korean War 120 100 Years after beginning of military buildup McGraw-Hilllrwin Source: U.S. Department of Commerce
McGraw-Hill/Irwin Copyright © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Output during Wartime T-182 Figure 24-9 Source: U.S. Department of Commerce