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Explain how the multiplier effect works

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(a.) What are the arguments for and against the use of fiscal policy to fight inflation, lower unemployment, and raise GDP (Keynesian and Monetarist)?

(b.) Any change in the economys total expenditures would be expected to translate into a change in GDP that was larger than the initial change in spending. This phenomenon is known as the multiplier effect. Explain how the multiplier effect works.

(c.) You are told that 80 cents out of every extra dollar pumped into the economy goes toward consumption (as opposed to saving). Estimate the GDP impact of a positive change in government spending that equals $10 billion.

Reference no: EM131111811

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