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The Multiplier
Read this short article from the December 10, 2020 edition of The Economist: How much economic stimulus does America actually need? In the second-to-last paragraph, the author points out that the fiscal multiplier during the pandemic was only about 0.6. You may have noticed that a value of 0.6 is much smaller than any multiplier you have computed in this class.
Define the term multiplier and explain, in detail, how it is computed.
Provide an example where you take the reader through a few ‘rounds’ of additional spending generating additional income, and that income causing more consumption spending, etcetera.
Then explain why the multiplier will be smaller if people saved rather than spent their stimulus checks.
In your answer, be sure to define any economic terminology you employ.
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