South-Western College Publishing - Economics  

With A Little Bit of Luck
Subject The Simple Spending Multiplier
Topic Aggregate Demand/Aggregate Supply
Key Words Aggregate Expenditure, Spending Multiplier.
News Story

East St. Louis, Illinois was in trouble. The city was in debt, there was no money to buy gas for the city’s police cars, trash was piling up and there wasn’t even enough money to light up the downtown at night. A savior appeared in the form of a casino. The Casino Queen is now the second largest employer in East St. Louis. Nearly half of the city’s tax revenue comes from the casino.

Before the economy of East St. Louis started to decline in the 1960s, East St. Louis was a blue-collar town that was the home of stockyards, meat-packing plants and railroads. As these industries declined, so did the population–down from 82,000 in 1960 to 42,000 today. A significant portion of the people that left were white, leaving the city now predominantly black.

The impact of the casino has been significant. The city receives about $9 million annually from gambling. It has used this money to repair streets, demolish vacant buildings, buy new fire-fighting equipment, and nearly double the size of its police force. There are many beneficial indirect impacts also. Three million people are estimated to visit the casino each year. As a consequence, developers are planning and building new hotels and a golf course. New homes are also being built. The city has used its increased revenues to lower the amount of its outstanding debt to about $13 million from $80 million.

An increasing number of cities are benefiting from gambling. The Gulfport region of Mississippi and Joliet, Illinois, are two other areas that have seen increased employment and increases to its tax base. A Presidential commission is expected to report in June on the impact that casinos and other forms of gambling have had on the nation.
(Updated August 12, 1998)

Questions
  1. Describe the effects of an increase in aggregate expenditure on the economy of East St. Louis.
  2. What is the simple spending multiplier?
  3. What are some of the factors that determine the size of the multiplier?
  4. What is a balanced-budget multiplier?
Source Brett Pulley, “Casino Changes the Fortune of a Hard-Luck Illinois City,” The New York Times, July 21, 1998.

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