FORMATIVE ACTIVITY $24$: PURCHASING POWER PARITY

Answer the questions below US$242910$ SO$4$ AC$4$

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$1.$ When we say that South Africa has a PPP GDP of $765,567\mathrm{.}48$ and the United States has a PPP GDP of $19,390,604,$ what does this mean?

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$2.$ Why do you think that the PPP GDP for the United States and China are so much higher than say, for the United Kingdom?

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FORMATIVE ACTIVITY $25$: ACCELERATOR EFFECT, MULTIPLIER EFFECT AND ENDING THE GLUT

We have already alluded to the concept of $$crowding out$.$ Keynes defended his policy of expansionary fiscal policy and criticised the classical idea of crowding out. Read the following three points and then debate their validity:

$($Excerpt from Pettinger, $2013)$ US$242910$

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$1.$Accelerator effect$$ this stated that investment was highly volatile. If the rate of GDP growth fell, private sector investment fell. However, if government spending increased the growth rate $$ this would encourage the private sector to also invest. Thus, government investment could complement private sector investment $$ not crowd it out.

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$2.$Multiplier effect$$ government spending could have a bigger final impact on real GDP$.$ The multiplier is likely to be higher in a recession because there are unused resources.

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$3.$Ending the glut$$ Keynes$$s strongest argument is that in a recession, private sector saving rises sharply leading to unused saving. Therefore, the government spending is merely making use of unemployed resources. Bond yields on government borrowing won$$t rise because the private sector want to buy government bonds.

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