. UL l Li L Consider the multiplier model discussed above. 1. Compare two economies. which differ only in their share of credit- constrained households but are identical otherwise. in which economy is the multiplier larger? Illustrate your answer using a diagram. 2. On the basis of your comparison of the two economies, would you expect the multiplier in an economy to vary over its business cycle? 3. Some economists estimated the size of the multiplier in the Great Depression to be equal to 1.8. Explain how the following characteristics of the US economy at the time could have affected its value: a. the size of government (see Figure 14.1) b. the fact that there were no unemployment benets EXERCISE 14.4 SPENDING CUTS IN A RECESSION Assume the government is initially in budget balance. 1. Does the government's budget balance improve. deteriorate, or remain unchanged if the government cuts its spending in a recession, ceterfs parfbus? To answer this question. use the example