Question

I CHOSE 1950-1960. 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. In your response posts to your peers, comment on the conclusions drawn by your peers regarding the multiplier effect. Choose two posts you disagree with, and provide constructive critique, supporting your opinion by researching a source to back it up. I CHOSE 1950-1960.

Answer 1

The autonomous spending is that part of the aggregate expenditure irrespective the level of income and GDP of the country. These are the necessary spending government has to make it for the sustainance levels , the increase of decrease in autonomous spending has a multiplier effect , it is captured by the expenditure multiplier to check the change in output by changes in autonomous expenditure.For example expenses made to rebuild houses after a tornado would involve spending and this is irrespective of income changes. But the multiplier is dependent on MPC i.e. DY=Da(1/1-MPC).From 1950 there has been a high autonomous spending like in US total spending $940 bn there almost 31% autonomous spending in the for others which means government is spending a larger chunk which impact multiplier .In ten years the expensees on welfare , military , aids have gone up and discussion on optimal taxation to help increase funds have come up . If the country does not collect enough taxes there will be a budget finance and multiplier impact will make it difficult for the government to continue making such expenses any more.Public sector spending can be finance through taxes of borrowing so a smoothened tax policy is necessary, in 1951 income tax had risen from 8 to 9.3%

References :

Barro, Robert J. (1974), “Are Government Bond Net Wealth?” Journal of Political Economy

Chari, V.V., and Patrick J. Kehoe (1999), “Optimal Fiscal and Monetary Policy,” in Handbook of Macroeconomics, Vol. 1, J.B. Taylor and M. Woodford, eds., Amsterdam: North Holland

Data usgov.in