宏观经济34_4E剖析.ppt

Changes in Government Purchases When policymakers change the money supply or taxes, the effect on aggregate demand is indirect—through the spending decisions of firms or households. When the government alters its own purchases of goods or services, it shifts the aggregate-demand curve directly. Changes in Government Purchases There are two macroeconomic effects from the change in government purchases: The multiplier effect The crowding-out effect The Multiplier Effect Government purchases are said to have a multiplier effect on aggregate demand. Each dollar spent by the government can raise the aggregate demand for goods and services by more than a dollar. The multiplier effect refers to the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending. Figure 4 The Multiplier Effect Quantity of Output Price Level 0 Aggregate demand, AD1 $20 billion AD2 AD3 1. An increase in government purchases of $20 billion initially increases aggregate demand by $20 billion . . . 2. . . . but the multiplier effect can amplify the shift in aggregate demand. A Formula for the Spending Multiplier The formula for the multiplier is: Multiplier = 1/(1 – MPC) An important number in this formula is the marginal propensity to consume (MPC). It is the fraction of extra income that a household consumes rather than saves. Solving for ?Y equilibrium condition in changes because I exogenous because ?C = MPC ?Y Collect terms with ?Y on the left side of the equals sign: Solve for ?Y : The government purchases multiplier Example: If MPC = 0.8, then Definition: the increase in income resulting from a $1 increase in G. In this model, the govt purchases multiplier equals An increase in G causes income to increase 5 times as much! A Formula for the Spending Multiplier If the MPC = 3/4, then the multiplier will be: Multiplier = 1/(1 – 3/4) = 4 In this case, a $20 billion increase in government spen