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Explain how the multiplier effect works

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Evaluate the fundamental arguments between Keynesians and Monetarists concerning the level of government involvement in our economy to minimize the impact and stabilize the different stages of the business cycle.

Any change in the economy's 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 themultiplier effect. Explain how the multiplier effect works.

You are told that 90 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 $8 billion.

Reference no: EM131131596

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