Econ Discussion

Income-Expenditure DiscussionThe income-expenditure model determines the equilibrium level of real GDP, from which one can infer the level of employment in the economy. A key part of the Income-Expenditure model is understanding that as national income (or GDP) rises, so does aggregate expenditure. But how does this work in the real world? Let’s talk about it!Assignment ObjectiveFormulate an opinion about the effectiveness of the fiscal policies used during the Great Recession and explain how the size of the multiplier impacts the economy.DirectionsDuring the period of the “Great Moderation” (the mid-1980s through the mid-2000s), discussion of the Keynesian expenditure multiplier had largely gone out of fashion. After all, if business cycles were largely tamed, the effects of a significant demand shock seemed irrelevant. When the Great Recession hit at the end of 2007, the expenditure multiplier became a hot topic again for discussion among macroeconomists.Why does the size of the expenditure multiplier matter in the real world? Why does it matter to businesses, employees, consumers and policy makers?Based on what you know about the multiplier, does it make sense why the government issued stimulus checks during the COVID pandemic? Was the fiscal stimulus response to the recession enough, just right, or too much? What evidence can you provide for your conclusion?