[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.00,0:00:03.00,Default,,0000,0000,0000,,Going with my habit of overly simplified economy let's imagine economy that
Dialogue: 0,0:00:03.00,0:00:07.00,Default,,0000,0000,0000,,has only two actors in it: so that's Mr Farmer right over here
Dialogue: 0,0:00:07.00,0:00:12.00,Default,,0000,0000,0000,,I'll do my best to draw the farmer, maybe he has the mustache of some kind
Dialogue: 0,0:00:12.00,0:00:15.00,Default,,0000,0000,0000,,so that's Mr Farmer right over here, he's got a hat on
Dialogue: 0,0:00:15.00,0:00:20.00,Default,,0000,0000,0000,,so it has Mr Farmer So that is the Farmer
Dialogue: 0,0:00:20.00,0:00:24.00,Default,,0000,0000,0000,,in this economy, and we'll also have a Builder
Dialogue: 0,0:00:24.00,0:00:27.00,Default,,0000,0000,0000,,so this economy they are producing two things: they are producing food and this Builder
Dialogue: 0,0:00:27.00,0:00:31.00,Default,,0000,0000,0000,,can help mantain stuff so maybe
Dialogue: 0,0:00:31.00,0:00:38.00,Default,,0000,0000,0000,,so maybe this is Mr Builder right over here
Dialogue: 0,0:00:38.00,0:00:40.00,Default,,0000,0000,0000,,is Mr Builder. And let's say, for the sake of
Dialogue: 0,0:00:40.00,0:00:44.00,Default,,0000,0000,0000,,do here let's say that for this economy it kind of a constant that
Dialogue: 0,0:00:44.00,0:00:47.00,Default,,0000,0000,0000,,either of these fellows gets an extra dollar to spend
Dialogue: 0,0:00:47.00,0:00:51.00,Default,,0000,0000,0000,,he is going to spend 60% of it so I'll introduce a formal word that
Dialogue: 0,0:00:51.00,0:00:55.00,Default,,0000,0000,0000,,that really is another way of saying that: in this economy
Dialogue: 0,0:00:55.00,0:00:59.00,Default,,0000,0000,0000,,the marginal propensity to consume: MPC
Dialogue: 0,0:00:59.00,0:01:03.00,Default,,0000,0000,0000,,propensity to
Dialogue: 0,0:01:03.00,0:01:07.00,Default,,0000,0000,0000,,consume is
Dialogue: 0,0:01:07.00,0:01:12.00,Default,,0000,0000,0000,,open parentesis is often MPC
Dialogue: 0,0:01:12.00,0:01:16.00,Default,,0000,0000,0000,,that is equal to say 60%
Dialogue: 0,0:01:16.00,0:01:18.00,Default,,0000,0000,0000,,and or is equal to 0.6
Dialogue: 0,0:01:18.00,0:01:23.00,Default,,0000,0000,0000,,And all this thing if someone in this economy somehow finds another dollar
Dialogue: 0,0:01:23.00,0:01:26.00,Default,,0000,0000,0000,,in their pocket they're going to spend 0.6 of that or
Dialogue: 0,0:01:26.00,0:01:31.00,Default,,0000,0000,0000,,60% of that, so if you give the Builder, if the builder gets some extra dollar
Dialogue: 0,0:01:31.00,0:01:35.00,Default,,0000,0000,0000,,he is going to spend another 60 cents on another things Farmer
Dialogue: 0,0:01:35.00,0:01:39.00,Default,,0000,0000,0000,,if the Farmer gets another dollar he is going to spend 60%
Dialogue: 0,0:01:39.00,0:01:43.00,Default,,0000,0000,0000,,or 60 cents with the builder. Now, given this assumption let's
Dialogue: 0,0:01:43.00,0:01:47.00,Default,,0000,0000,0000,,think about what'll happen in this economy if all of the sudden one of them decided to
Dialogue: 0,0:01:47.00,0:01:49.00,Default,,0000,0000,0000,,increase their spending over there: so all the sum
Dialogue: 0,0:01:49.00,0:01:55.00,Default,,0000,0000,0000,,economy let's say the farmer discovers
Dialogue: 0,0:01:55.00,0:01:58.00,Default,,0000,0000,0000,,a sac in a drawer that he didn't realise was there
Dialogue: 0,0:01:58.00,0:02:02.00,Default,,0000,0000,0000,,currency maybe get a
Dialogue: 0,0:02:02.00,0:02:09.00,Default,,0000,0000,0000,,maybe currency in that is
Dialogue: 0,0:02:09.00,0:02:09.00,Default,,0000,0000,0000,,dollar and the farmer discovers that he
Dialogue: 0,0:02:09.00,0:02:16.00,Default,,0000,0000,0000,,he discovers a big power dollar in the sac
Dialogue: 0,0:02:16.00,0:02:19.00,Default,,0000,0000,0000,,and he say and do some repairs to my building
Dialogue: 0,0:02:19.00,0:02:23.00,Default,,0000,0000,0000,,so let's we have this kind of increase in
Dialogue: 0,0:02:23.00,0:02:27.00,Default,,0000,0000,0000,,spending that's going on, so the farmer says I'm going to spend
Dialogue: 0,0:02:27.00,0:02:31.00,Default,,0000,0000,0000,,I'm going to spend 1000 dollars and I'm going to
Dialogue: 0,0:02:31.00,0:02:33.00,Default,,0000,0000,0000,,give it to the builder, now the builder says
Dialogue: 0,0:02:33.00,0:02:40.00,Default,,0000,0000,0000,,1000 dol, I have the marginal propensity to consume or 0.6
Dialogue: 0,0:02:40.00,0:02:42.00,Default,,0000,0000,0000,,he is going to spend
Dialogue: 0,0:02:42.00,0:02:50.00,Default,,0000,0000,0000,,with the farmer he is going to spend 60%
Dialogue: 0,0:02:50.00,0:02:56.00,Default,,0000,0000,0000,,times 1000 dol, which is equal to 600 dol
Dialogue: 0,0:02:56.00,0:03:00.00,Default,,0000,0000,0000,,well now the farmer says
Dialogue: 0,0:03:00.00,0:03:03.00,Default,,0000,0000,0000,,1000 somehow the builder to spend
Dialogue: 0,0:03:03.00,0:03:06.00,Default,,0000,0000,0000,,more on me much more
Dialogue: 0,0:03:06.00,0:03:12.00,Default,,0000,0000,0000,,I had 600 more I have the marginal propensity
Dialogue: 0,0:03:12.00,0:03:15.00,Default,,0000,0000,0000,,to consume of 0.6 or 60% so I'll spend
Dialogue: 0,0:03:15.00,0:03:17.00,Default,,0000,0000,0000,,60% of that 600 dol that I've just got
Dialogue: 0,0:03:17.00,0:03:23.00,Default,,0000,0000,0000,,it will be 60% of that thing so it will be
Dialogue: 0,0:03:23.00,0:03:27.00,Default,,0000,0000,0000,,60 decimal so it will be 0.6
Dialogue: 0,0:03:27.00,0:03:32.00,Default,,0000,0000,0000,,times this thing which is 0.6
Dialogue: 0,0:03:32.00,0:03:35.00,Default,,0000,0000,0000,,times 1000 or you can say 60%
Dialogue: 0,0:03:35.00,0:03:38.00,Default,,0000,0000,0000,,of this 600 dol which is going to equal to 360 dol.
Dialogue: 0,0:03:38.00,0:03:43.00,Default,,0000,0000,0000,,now the builder says
Dialogue: 0,0:03:43.00,0:03:48.00,Default,,0000,0000,0000,,I gave the initial 600 dol another 360 dollars
Dialogue: 0,0:03:48.00,0:03:52.00,Default,,0000,0000,0000,,and I have the amrginal propensity to consume of 0.6 so I'll
Dialogue: 0,0:03:52.00,0:03:54.00,Default,,0000,0000,0000,,spend 60% of that bothered on this spending
Dialogue: 0,0:03:54.00,0:04:00.00,Default,,0000,0000,0000,,he also spends 60% of this right over here and 60% of this
Dialogue: 0,0:04:00.00,0:04:03.00,Default,,0000,0000,0000,,is 0.6 times this whole thing
Dialogue: 0,0:04:03.00,0:04:07.00,Default,,0000,0000,0000,,0.6 times this thing
Dialogue: 0,0:04:07.00,0:04:12.00,Default,,0000,0000,0000,,times 0.6 times this thing - times 0.6
Dialogue: 0,0:04:12.00,0:04:16.00,Default,,0000,0000,0000,,times 1000 dol. Now this
Dialogue: 0,0:04:16.00,0:04:20.00,Default,,0000,0000,0000,,number right over here 60% of 360 dol
Dialogue: 0,0:04:20.00,0:04:24.00,Default,,0000,0000,0000,,I'd like to calculator to figure what it is exactly
Dialogue: 0,0:04:24.00,0:04:28.00,Default,,0000,0000,0000,,so let's say that I have
Dialogue: 0,0:04:28.00,0:04:34.00,Default,,0000,0000,0000,,it's 0.6 to the 3rd power
Dialogue: 0,0:04:34.00,0:04:37.00,Default,,0000,0000,0000,,0.6 to the third
Dialogue: 0,0:04:37.00,0:04:40.00,Default,,0000,0000,0000,,multiply that times 1000
Dialogue: 0,0:04:40.00,0:04:44.00,Default,,0000,0000,0000,,gives us 216 dollars. so this guy
Dialogue: 0,0:04:44.00,0:04:46.00,Default,,0000,0000,0000,,write it over here
Dialogue: 0,0:04:46.00,0:04:52.00,Default,,0000,0000,0000,,I'm going to spend 60% of that
Dialogue: 0,0:04:52.00,0:04:55.00,Default,,0000,0000,0000,,is going, and 60% of you see where it's going
Dialogue: 0,0:04:55.00,0:04:56.00,Default,,0000,0000,0000,,so it's going to be 0.6
Dialogue: 0,0:04:56.00,0:05:02.00,Default,,0000,0000,0000,,times this thing which is already 0.6 times 0.6
Dialogue: 0,0:05:02.00,0:05:08.00,Default,,0000,0000,0000,,0.6 times 0.6 to the 3rd power
Dialogue: 0,0:05:08.00,0:05:11.00,Default,,0000,0000,0000,,0.6 to the 4th power times
Dialogue: 0,0:05:11.00,0:05:16.00,Default,,0000,0000,0000,,1000 which is whatever sixty
Dialogue: 0,0:05:16.00,0:05:17.00,Default,,0000,0000,0000,,percent of
Dialogue: 0,0:05:17.00,0:05:24.00,Default,,0000,0000,0000,,0.6 gives us 115 dollars
Dialogue: 0,0:05:24.00,0:05:27.00,Default,,0000,0000,0000,,129, and this guy Oh I have
Dialogue: 0,0:05:27.00,0:05:32.00,Default,,0000,0000,0000,,spend 60% of that, and this goes on and on
Dialogue: 0,0:05:32.00,0:05:35.00,Default,,0000,0000,0000,,so given this think how much from that incremental
Dialogue: 0,0:05:35.00,0:05:39.00,Default,,0000,0000,0000,,increase of spending of a 1000 dollars how much total
Dialogue: 0,0:05:39.00,0:05:42.00,Default,,0000,0000,0000,,new production and spending happen in this economy
Dialogue: 0,0:05:42.00,0:05:46.00,Default,,0000,0000,0000,,so the way to think about that - so the total
Dialogue: 0,0:05:46.00,0:05:53.00,Default,,0000,0000,0000,,we can do the either way we can do kind of GDP
Dialogue: 0,0:05:53.00,0:05:56.00,Default,,0000,0000,0000,,output income expenditure
Dialogue: 0,0:05:56.00,0:06:00.00,Default,,0000,0000,0000,,these all views because economy is a very thing
Dialogue: 0,0:06:00.00,0:06:03.00,Default,,0000,0000,0000,,one persone's expenditure turns into another person's income
Dialogue: 0,0:06:03.00,0:06:07.00,Default,,0000,0000,0000,,we can say total output here measured in our agreed currency
Dialogue: 0,0:06:07.00,0:06:11.00,Default,,0000,0000,0000,,which is dollars this is now going to be
Dialogue: 0,0:06:11.00,0:06:16.00,Default,,0000,0000,0000,,original 1000 farmer spend for the builder
Dialogue: 0,0:06:16.00,0:06:21.00,Default,,0000,0000,0000,,original 1000 plus this 1st right over here
Dialogue: 0,0:06:21.00,0:06:24.00,Default,,0000,0000,0000,,this that the builder spent
Dialogue: 0,0:06:24.00,0:06:28.00,Default,,0000,0000,0000,,.6 times 1000 plus
Dialogue: 0,0:06:28.00,0:06:31.00,Default,,0000,0000,0000,,than we have this time the farmer said I'm
Dialogue: 0,0:06:31.00,0:06:39.00,Default,,0000,0000,0000,,6 square
Dialogue: 0,0:06:39.00,0:06:40.00,Default,,0000,0000,0000,,times 1000 and than this guy
Dialogue: 0,0:06:40.00,0:06:42.00,Default,,0000,0000,0000,,I spend 60% of that
Dialogue: 0,0:06:42.00,0:06:48.00,Default,,0000,0000,0000,,and spend gives 3rd power
Dialogue: 0,0:06:48.00,0:06:52.00,Default,,0000,0000,0000,,1000 + 0.6 to the 3rd power times
Dialogue: 0,0:06:52.00,0:06:55.00,Default,,0000,0000,0000,,1000 and that the last
Dialogue: 0,0:06:55.00,0:06:59.00,Default,,0000,0000,0000,,keep going on and on forever theoretically
Dialogue: 0,0:06:59.00,0:07:04.00,Default,,0000,0000,0000,,6 + 0.6 to the 4th power
Dialogue: 0,0:07:04.00,0:07:08.00,Default,,0000,0000,0000,,times 1000 and this will keep going on and on
Dialogue: 0,0:07:08.00,0:07:11.00,Default,,0000,0000,0000,,forever plus 0.6 to the 5th power
Dialogue: 0,0:07:11.00,0:07:15.00,Default,,0000,0000,0000,,0.6 to the 6th power and going on and on forever
Dialogue: 0,0:07:15.00,0:07:21.00,Default,,0000,0000,0000,,and one of those things about mathematics
Dialogue: 0,0:07:21.00,0:07:24.00,Default,,0000,0000,0000,,equall multuply is that you can actually sum
Dialogue: 0,0:07:24.00,0:07:28.00,Default,,0000,0000,0000,,up because this value right over here is less than one
Dialogue: 0,0:07:28.00,0:07:31.00,Default,,0000,0000,0000,,ends up being infinite sum
Dialogue: 0,0:07:31.00,0:07:35.00,Default,,0000,0000,0000,,you can actually take this infinite sum and find number so just to simplify this
Dialogue: 0,0:07:35.00,0:07:40.00,Default,,0000,0000,0000,,the total output from that's kind of original 1000
Dialogue: 0,0:07:40.00,0:07:43.00,Default,,0000,0000,0000,,we can factured 1000 new colour
Dialogue: 0,0:07:43.00,0:07:48.00,Default,,0000,0000,0000,,so we can fracturate 1000 left with
Dialogue: 0,0:07:48.00,0:07:52.00,Default,,0000,0000,0000,,one plus 0.6 plus
Dialogue: 0,0:07:52.00,0:07:57.00,Default,,0000,0000,0000,,0.6 square + 0.6
Dialogue: 0,0:07:57.00,0:08:01.00,Default,,0000,0000,0000,,to the third power plus 0.6 to the 4th power
Dialogue: 0,0:08:01.00,0:08:04.00,Default,,0000,0000,0000,,on and on and on and on the next video
Dialogue: 0,0:08:04.00,0:08:10.00,Default,,0000,0000,0000,,just for fun, but his write over here it's an infitinite sum
Dialogue: 0,0:08:10.00,0:08:12.00,Default,,0000,0000,0000,,geometric series and this actually simplify to
Dialogue: 0,0:08:12.00,0:08:17.00,Default,,0000,0000,0000,,as one over one
Dialogue: 0,0:08:17.00,0:08:20.00,Default,,0000,0000,0000,,minus 0.6, so whatever this number is
Dialogue: 0,0:08:20.00,0:08:23.00,Default,,0000,0000,0000,,here that will be
Dialogue: 0,0:08:23.00,0:08:30.00,Default,,0000,0000,0000,,this will be equal one over
Dialogue: 0,0:08:30.00,0:08:34.00,Default,,0000,0000,0000,,0.4 and 0.4
Dialogue: 0,0:08:34.00,0:08:37.00,Default,,0000,0000,0000,,is two fifths one over two fifths
Dialogue: 0,0:08:37.00,0:08:40.00,Default,,0000,0000,0000,,which is equal to 5 halfs
Dialogue: 0,0:08:40.00,0:08:46.00,Default,,0000,0000,0000,,so your total output is going to be equal to
Dialogue: 0,0:08:46.00,0:08:50.00,Default,,0000,0000,0000,,1000 times 5 halfs
Dialogue: 0,0:08:50.00,0:08:54.00,Default,,0000,0000,0000,,and this the same thing as equal to 1000 times 2,5
Dialogue: 0,0:08:54.00,0:08:58.00,Default,,0000,0000,0000,,which is equal to 25 hundret (2500)
Dialogue: 0,0:08:58.00,0:09:02.00,Default,,0000,0000,0000,,there is two interesting ideas going here. one is when people get a bit of more income, they're going to
Dialogue: 0,0:09:02.00,0:09:06.00,Default,,0000,0000,0000,,spend some of it adn that's the marginal propensity to consume
Dialogue: 0,0:09:06.00,0:09:09.00,Default,,0000,0000,0000,,how much you 60% of that
Dialogue: 0,0:09:09.00,0:09:13.00,Default,,0000,0000,0000,,60% it keep going multiplied throw the economy
Dialogue: 0,0:09:13.00,0:09:17.00,Default,,0000,0000,0000,,multiplier fraction of that get spent
Dialogue: 0,0:09:17.00,0:09:20.00,Default,,0000,0000,0000,,some fraction of that get spent
Dialogue: 0,0:09:20.00,0:09:24.00,Default,,0000,0000,0000,,1000 that first 1000 dollars got multiplied
Dialogue: 0,0:09:24.00,0:09:29.00,Default,,0000,0000,0000,,by 2,5 and that 2,5 was completely a function of what the
Dialogue: 0,0:09:29.00,0:09:34.00,Default,,0000,0000,0000,,MPC was, so we have this relationship here
Dialogue: 0,0:09:34.00,0:09:37.00,Default,,0000,0000,0000,,is that whatever the marginal propensity to consumer is that drives
Dialogue: 0,0:09:37.00,0:09:41.00,Default,,0000,0000,0000,,the multiplier that drives the multiplier
Dialogue: 0,0:09:41.00,0:09:45.00,Default,,0000,0000,0000,,all the multiplier say if you spend an extra dollar in this economy
Dialogue: 0,0:09:45.00,0:09:49.00,Default,,0000,0000,0000,,given people's MPC how much
Dialogue: 0,0:09:49.00,0:09:53.00,Default,,0000,0000,0000,,will than increase total output