Macroeconomics Part 2 Day 4

What justification is there for allowing the social security recipients to get their benefits adjusted and move to a higher indifference curve

One justification is that the CPI for urban workers understates the cost of living for social security recipients due to healthcare prices. Also, over time everyone's standard of living increases.

Is the multiplier lower than one would think in real life?

Yes

If the MPC is one the multiplier would be infinite? True or false?

True

Planned spending equals

Consumption + investment + government spending(net exports can be added but it adds nothing to the analysis)

Disposable income equals

GDP minus the taxes. You can add transfer payments to complicate things.

To figure out how much a GDP will drop if investment, government spending or exports goes down. What do you do?

Multiply the multiplier by the amount a number goes down and then subtract that number from the GDP

What are lump sum taxes

Taxes that are equal to a certain amount regardless of what the amount of GDP is

In the real world, what is a leakage that would cut the multiplier even more in the world?

Some extra spending will be on imports so some of the dollars do not go back into the US economy