Question

I just need peer response of one paragraph on this discussion post.

The 70s decade had relevant events that affected America's economic history. The decade started with a war going on and a recession. Those two alone was enough to see that the economy would have been affected. The multiplier effect refers to an economic factor when increased or changed, causes increases hanges in many other related economic variables (Kenton, 2018) This effecet is mostly looked upon the governments spending habits and how it affects the country. President Nixon had to make many decisions and they may not have all been the best decision. He made the decision to During this time th government was using factories to make items for the military. So with that being said, their factories ere not making the financial support it needed to thrive. The factories produced goods that could be used in the US or as well as exported goods. e multiplier effect makes me think of how the Federal Reserve would make more money to pay of deb, however, cause more problems for the conomy. The multiplier effecetis usually referenced to th relationship between government spending and total national income (Kenton, 2018) Not only was the Th re probleins for the ecoomy The muliplite of to h ey multiplying but the effects on the economy multiplied Kenton, W. (2018, July 13). Multiplier. Retrieved from Investopedia https://www.investopedia.com/terms/m/multiplier.asp

Answer 1

The war in the middle east and the controlling of oil supplies by OPEC( Organization of Petroleum Exporting Countries) led to a recession situation in the US and a slow down all across the globe. The multiplier effect is a macroeconomic concept which explains the impact of reduction in spending or increase in spending by the state on the whole of economy. When marginal propensity to consume is high, people tend to spend major chunk of their increase in income( due to government spending) which multiplies to create a greater increase in income for the whole of economy and other economic variables and vice versa.

In times of recessions when private spending time reduces, I government steps in to increase spending to bring in the multiplier effect so as to get the economy out of recession. This was what exactly followed by President Nixon. The problem lies in the kind of goods manufactured at that time since to get the multiplier into action one has to produce consumable goods as well but the US economy produced military items mainly. This helped the economy less in recovering. Also the golden rule of Philips curve fell apart in this period and stagflation was experienced for the first time in decades. Stagflation is a situation of high inflation and low output which was opposite to classic recession situation of low output and low inflation.