Aggregate expenditure is the total amount of spending in the economy that determines the level of the GDP. Components of aggregate expenditure are autonomous expenditure, planned private investments, government expenditure, and net exports. When autonomous expenditure increases or decreases, it has a multiplied effect on the GDP.
Referring to the 10-year historical period that you chose for your final project, discuss an example of a change in autonomous spending. Research a government policy implemented during that time and discuss the multiplier effect it had on the economy.
I choose Decade 2000 to 2010
1. Identify a government policy that would have changed government spending during your time period.
This can be a fiscal policy – a change in tax rules or government spending rules that would have had a multiplier effect.
o This can include changes to transfer payments, also known as social welfare programs.
Identify the specific policy that changed spending, did spending increase or decrease? By how much?
One resource that I recommend is The Balance https://www.thebalance.com/ use the search feature to identify policies in your time period. The information is relatively easy to digest from this source.
2. Explain the multiplier process. How did this initial change in government spending or taxation rule affect the economy through the multiplier process? For this, you will need to refer back to what the multiplier process is.
Information: The aggregate demand and aggregate supply (AD/AS) model is based on the demand and supply model studied in Module One. The AD/AS model shifts the focus from the demand and supply of individual firms or industries to the aggregate demand and aggregate supply for all goods and services produced in a country.
Aggregate demand is total expenditure of a country in terms of consumption, government spending, investment, and net exports. Aggregate supply is all that is produced and, in the model, is distinguished by short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS).
The AD/AS model is fundamental to the study of macroeconomics, as it is used to study the conditions of our economy and also to forecast the effects of government policies.
The 20072009 recession is a primary example of how government policies were implemented to correct the economy by causing aggregate demand to shift back to full employment equilibrium. By passing the stimulus spending (American Recovery and Reinvestment Act), the government attempted to spur economic growth by boosting consumption and investments. A stimulus package would have the specific purpose of boosting aggregate demand in line with Keynesian economists who believe in government intervention to get the economy back in equilibrium (Coy, 2014).
The contrasting classical economists on the other hand have a laissez-faire approach. They believe that the economy should self-adjust with no external intervention, and it will eventually return to full employment equilibrium. The controversy between the two economic theories, both boasting distinguished economists and followers, continues to this day (Koehn, 2011)