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Spending Multiplier.edited

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KEYNESIAN PROGRAMS 1 Keynesian programs Name Institution Instructor Date KEYNESIAN PROGRAMS 2 Qn. 1 The spending multiplier is the reciprocal o of the marginal propensity to save (MPS). This means that when the MPS is high, the multiplier is lower and vice versa. Spending multiplier is important because it helps economists to come up with a suitable stimulus for the economy. MPS affects the stimulus directly because it is high it means that the consumers are not spending which in return decreases the multiplier which results in a smaller and a stimulus which is not effective. On the other hand, when there are more spending and fewer savings, it increases the multiplier which in return makes the stimulus to be more effective. This is an indication that the spending multiplier is directly connected to the concept of multiplier and its effect on the economy. This also shows that when the government changes its ways on how it does things, it directly affects the overall economy significantly. In order to calculate the spending multiplier, economists often use the formula of 1/MPS or 1/(-MPC) (Bordo, 2008). A good example to depict spending multiplier can be the scenario where the ...
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