538 Miller Economics Today, Nineteenth Edition
Chapter 12 Consumption, Real GDP, and the Multiplier
The Financial Crisis of 2008 and the U.S. Saving Function
In the fall of 2008, the global financial crisis set off fears of a recession. As the financial markets and
stock prices collapsed, households, fearing a recession, began to save more. The Keynesian model
predicts that the result of households increasing saving to protect themselves from the expected recession
can actually cause a recession to occur.
Changes in Wealth and Consumption
In the third quarter of 2008, the financial markets collapsed along with the housing market where housing
prices began falling after 2008 and continued into 2011. Could this fact explain the slow recovery of
consumption spending?
Is the U.S. Rate of Investment Understated?
Investment is measured in the national income accounts as the sum of spending on physical capital
plants and equipment, infrastructure, and housing and adjustments to inventories of produced goods.
Using this definition, the portion of U.S. real GDP allocated to investment lags behind much of the rest
of the developed world. Some economists worry that the result is that total planned expenditures are
depressed along with equilibrium income. In addition, these economists are concerned that the lower rate
of investment reduces the rate of capital accumulation and reduces economic growth.
Lecture Extender Examples 539
The MPC and the Multiplier in the United States
A significant issue from 2009 to 2012 was the problem of slow economic growth after the recession that
began in late 2007. An fast
that would be needed. The multiplier concept would be useful in determining the answer to this problem.
The multiplier concept appears to suggest that the MPC, and thus the multiplier, is constant over time, so
Instruct students to compute the MPC for the years 2009 2010 and for 2011 2012. What would be the
values of the simple multiplier for these two time periods? MPC between 2009 and 2010 is the change in