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The usefulness and limits of the spending multiplier” (graded)   Previous Next  Using the


Using the posted video lecture and online videos in Module 6, and posted articles from “The Economist” magazine accompanying this weekly threaded discussion, lead a class discussion on the usefulness of the spending multiplier in predicting how much GDP will change in the short-run in response to a change in autonomous expenditures (consumption spending, investment spending, and government spending). 

What are the assumptions of the multiplier?  Are the assumptions realistic? 

Is the concept of the spending multiplier out-dated for the type of economy we have today? 

Should focus be on growing GDP or on improving economic welfare? 

What obstructions exist in the economy that can “bog down” a multiplier process”; preventing all layers of the economy from being reached over time?

In response to multiplier effects, what economic indicators will be useful to follow as leading indicators and lagging indicators to assess the impact of expenditure changes on output changes over a number of short-run periods? 

Finally, to make estimated multipliers more realistic, what modifications should be done to make multipliers more useful and relevant in estimating impacts of changes in aggregate spending on GDP over a number of short-run periods?

“Much Ado About multipliers?” (The Economist, 09/24/2009)

“Its not about the multiplier” (The Economist, 03/21/2011)

“Raising Military Spending Increases Output” (The Economist, 10/05/2011)

“Multiplier Maths” (The Economist, 08/02/2013)

“Where does the buck stop?” (The Economist, 08/11/2016)

Consumers are sitting on a pile of cash. Will they spend it?” (The Economist, 03/09/2021)

“Will Joe Biden’s fiscal stimulus overheat the American economy?” (The Economist, 01/19/2021)

“Dear Prudence: America’s Unspent Stimulus Cheques” (The Economist Esspresso”

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