Short run Output and Expenditure
|
|
- Chad Knight
- 6 years ago
- Views:
Transcription
1 Short run Output and Expenditure
2 Short-run Output and Expenditure The Learning Objectives in this presentation are covered in Chapter 19: Output and Expenditure in the Short Run LEARNING OBJECTIVES 1 To understand how macroeconomic equilibrium is determined in the aggregate expenditure model 2 Discuss the determinants of the four components of aggregate expenditure and understand the marginal propensity to consume and save 3 Use a 45 line diagram to illustrate macroeconomic equilibrium 4 Define the multiplier effect and use it to calculate changes in equilibrium GDP and understand the relationship between the aggregate demand curve and aggregate expenditure 2
3 Fluctuating Demand in the Short-run A model of the short run economy where spending determines the output businesses produce Developed in the 1930s by John Maynard Keynes, this model generates important policy recommendations and a role for the government in stabilising the economy 3
4 The Aggregate Expenditure Model LEARNING OBJECTIVE: ONE Aggregate expenditure model A macroeconomic model that focuses on the relationship between total spending and real GDP, assuming that the price level is constant Four types of spending in the economy: Aggregate Expenditure (AE): 1 Consumption (C) 2 Planned Investment (I p ) additions to capital stock and inventory 3 Government Purchases (G) 4 Net Exports (NX) 4
5 Four Parts of Aggregate Expenditure LEARNING OBJECTIVE: ONE Aggregate expenditure = Consumption + Planned investment + Government purchases + Net exports or AE = C + I p + G + NX 5
6 Difference between Planned and Actual Investment LEARNING OBJECTIVE: ONE One component of actual investment unplanned inventory change is partly determined by how much households decide to buy, which is not under the complete control of firms Inventories are goods that have been produced but not yet sold Planned investment refers to the additions to capital stock and inventory that are planned by firms Actual investment is the actual total amount of investment that takes place; it includes both the planned investment and items such as unplanned changes in inventories: Actual investment = Planned Investment + Unplanned Investment Unplanned Investment = Expected sales actual sales 6
7 Planned and Actual Investment an example LEARNING OBJECTIVE: ONE The difference between Planned Investment and Actual Investment Example: Apple plans to produce 162 million ipads this year It expects to sell 161 million and add 100,000 to its inventories in its stores Therefore what is Apple s Planned Investment? 100,000 ipads If Apple only sells 159 million, what is its Actual Investment? Planned investment + difference between expected and actual sales =100, ,000 = 300,000 ipads 7
8 Adjustments to Macroeconomic Equilibrium LEARNING OBJECTIVE: ONE Table The Relationship between Aggregate Expenditure (spending) and GDP (production) IF THEN AND Aggregate expenditure is equal to GDP (spending equals production) Aggregate expenditure is less than GDP (spending is less than production) Aggregate Expenditure is greater than GDP (spending is more than production) inventories are unchanged inventories rise inventories fall the economy is in macroeconomic equilibrium GDP and employment decrease GDP and employment increase Making the Connection Macroeconomic Equilibrium: Aggregate expenditure = GDP Planned aggregate spending = total output 8
9 Adjusting to Macroeconomic Equilibrium A Summary LEARNING OBJECTIVE: ONE Changes in unplanned inventories play an important role in the adjustment of the economy back to equilibrium: If AE is greater than GDP firms see their unplanned inventories fall and so they will increase production and hiring of workers If AE is less than GDP firms see their unplanned inventories rise and so they will decrease production and lay off workers If AE is equal to GDP firms sell what they expected to sell and there is no incentive for them to increase or decrease production 9
10 Determining the Level of Aggregate Expenditure LEARNING OBJECTIVE: TWO Table Components of Real Aggregate Expenditure,
11 Consumption (C) LEARNING OBJECTIVE: TWO The following are the five most important variables that determine the level of consumption: 1 Current disposable income 2 Household wealth 3 Expected future income 4 The price level 5 The interest rate 11
12 The Determinants of Consumption (1) LEARNING OBJECTIVE: TWO 1 Current Disposable Income The most important determinant of consumption is the current disposable income of households 2 Household Wealth Consumption also depends on the wealth of households A household s wealth is the value of its assets minus the value of its liabilities 12
13 The Determinants of Consumption (2) LEARNING OBJECTIVE: TWO 3 Expected Future Income Consumption also depends on expected future income Most people prefer to keep their consumption fairly stable from year to year, even if their income fluctuates significantly 4 The Price Level The price level measures the average prices of goods and services in the economy Consumption is affected by changes in the price level 5 The Interest Rate When the interest rate is high, the reward to saving is increased, and households are likely to save more and spend less 13
14 The Consumption Function LEARNING OBJECTIVE: TWO The Consumption Function The positive relationship between consumption spending and disposable income is known as the consumption function Marginal Propensity to Consume (MPC) The slope of the consumption function (The amount by which consumption spending changes when disposable income changes) MPC Change in consumption Change in disposable income C YD 14
15 The Consumption Function LEARNING OBJECTIVE: TWO We can also use the MPC to determine how much consumption will change as income changes: MPC Change in consumption Change in disposable income or Change in consumption = Change in disposable income MPC 15
16 Consumption and National Income LEARNING OBJECTIVE: TWO The Relationship between Consumption and National Income Disposable income = National income Net taxes We can rearrange the equation like this: National income = GDP = Disposable income + Net taxes 16
17 Consumption and National Income LEARNING OBJECTIVE: TWO Figure The Relationship between Consumption and National Income 17
18 Income, Consumption and Savings LEARNING OBJECTIVE: TWO National income = Consumption + Saving + Taxes Change in national income = Change in consumption + Change in saving + Change in taxes Y = C + S + T and Y C S T To simplify, we can assume that taxes are always a constant amount, in which case ΔT = 0, so the following is also true: ΔY = ΔC + ΔS 18
19 Income, Consumption and Savings LEARNING OBJECTIVE: TWO Marginal propensity to save (MPS) The change in saving divided by the change in disposable income or, Y C S Y Y Y 1 = MPC + MPS 19
20 Putting it into Practice Calculating the Marginal Propensity to Consume and the Marginal Propensity to Save MPC C Y MPS S Y NATIONAL INCOME AND REAL GDP (Y) CONSUMPTION (C) SAVING (S) MARGINAL PROPENSITY TO CONSUME (MPC) MARGINAL PROPENSITY TO SAVE (MPS) $9,000 $8,000 $1,000 10,000 8,600 1, ,000 9,200 1, ,000 9,800 2, ,000 10,400 2,
21 Planned Investment (I p ) LEARNING OBJECTIVE: TWO 21
22 The Determinants of Planned Investment (1) LEARNING OBJECTIVE: TWO The four most important variables that determine the level of investment are: 1 Expectations of future profitability 2 The interest rate 3 Taxes 4 Cash flow 22
23 The Determinants of Planned Investment (2) LEARNING OBJECTIVE: TWO 1 Expectations of Future Profitability The optimism or pessimism of firms is an important determinant of investment spending 2 The Interest Rate A higher real interest rate results in less investment spending, and a lower real interest rate results in more investment spending 3 Taxes Firms focus on the profits that remain after they have paid taxes 4 Cash Flow Cash flow is the difference between the cash revenues received by a firm and the cash spending by the firm 23
24 Making the Connection The Construction Boom in the Gulf ( ) Induces Steel Production Capacity Growth The GCC countries have experienced an unprecedented growth in the spending on construction and real estate during Steel imports grew The optimistic growth expectations, the flow of capital, and a growing building momentum had led investors to quickly take the opportunity to finance capacity expansions and new steel plants in the GCC area 24
25 Government Purchases (G) LEARNING OBJECTIVE: TWO 25
26 Net Exports (NX) LEARNING OBJECTIVE: TWO 26
27 The Determinants of Net Exports (1) LEARNING OBJECTIVE: TWO The following are the three most important variables that determine the level of net exports: 1 The price level domestically relative to the price levels in other countries 2 The growth rate of GDP domestically relative to the growth rates of GDP in other countries 3 The exchange rate between the dollar and other currencies 27
28 The Determinants of Net Exports (2) LEARNING OBJECTIVE: TWO 1 The Price Level in the United States Relative to the Price Levels in Other Countries If inflation in the United States is lower than inflation in other countries, prices of US products increase more slowly than the prices of products of other countries 2 The Growth Rate of GDP in the United States Relative to the Growth Rates of GDP in Other Countries When incomes in the United States rise more slowly than incomes in other countries, net exports will rise 3 The Exchange Rate Between the Dollar and Other Currencies As the value of the US dollar rises, the foreign currency price of US products sold in other countries rises, and the dollar price of foreign products sold in the United States falls 28
29 Macroeconomic Equilibrium An Example LEARNING OBJECTIVE: THREE Figure Example of a 45 -Line Diagram 29
30 Macroeconomic Equilibrium The Whole Economy LEARNING OBJECTIVE: THREE Figure The Relationship between Planned Aggregate Expenditure and GDP on a 45 -Line Diagram 30
31 Macroeconomic Equilibrium The Keynesian Cross LEARNING OBJECTIVE: THREE Figure Macroeconomic Equilibrium 31
32 Modelling Macroeconomic Equilibrium LEARNING OBJECTIVE: THREE Figure Macroeconomic Equilibrium on the 45 -Line Diagram 32
33 Modelling a Recession LEARNING OBJECTIVE: THREE Figure Showing a Recession on the 45 -Line Diagram 33
34 Modelling Macroeconomic Equilibrium LEARNING OBJECTIVE: THREE The Important Role of Inventories Whenever planned aggregate expenditure is less than real GDP, some firms will experience an unplanned increase in inventories Whenever planned aggregate expenditure is more than real GDP, some firms will experience and unplanned decrease in inventories 34
35 An Example of Macroeconomic Equilibrium LEARNING OBJECTIVE: THREE Planned aggregate expenditure (AE) = Consumption (C) + Planned investment (I) + Government (G) + Net exports (NX) Table Macroeconomic Equilibrium Real GDP (Y) Consumption (C) Planned Investment (I) Government Purchases (G) Net Exports (NX) Planned Aggregate Expenditure (AE) Unplanned Change in Inventories Real GDP Will $8,000 $6,200 $1,500 $1,500 $500 $8,700 $700 increase 9,000 6,850 1,500 1, , increase 10,000 7,500 1,500 1, ,000 0 be in equilibrium 11,000 8,150 1,500 1, , decrease 12,000 8,800 1,500 1, , decrease Unplanned change in inventories = Real GDP (Y) Planned aggregate expenditure (AE) 35
36 Modelling the Multiplier Effect (1) LEARNING OBJECTIVE: THREE Figure The Multiplier Effect 36
37 Modelling the Multiplier Effect (2) LEARNING OBJECTIVE: THREE Multiplier effect = The process by which an increase in autonomous expenditure leads to a larger increase in real GDP because of a series of induced changes in consumption Autonomous expenditure = An expenditure that does not depend on the level of GDP: G, I, NX & C Non Autonomous expenditure = An expenditure that does depend on the level of GDP: C Multiplier = The increase in equilibrium real GDP divided by the increase in autonomous expenditure 37
38 The Multiplier Effect A Numerical Example LEARNING OBJECTIVE: THREE Table The Multiplier Effect in action ADDITIONAL AUTONOMOUS EXPENDITURE (INVESTMENT) ADDITIONAL INDUCED EXPENDITURE (CONSUMPTION) TOTAL ADDITIONAL EXPENDITURE = TOTAL ADDITIONAL GDP ROUND 1 $100 billion $0 $100 billion ROUND billion 175 billion ROUND billion 231 billion ROUND billion 273 billion ROUND billion 305 billion ROUND billion 377 billion ROUND billion 395 billion ROUND billion 398 billion n 0 0 $400 billion 38
39 A Formula for the Multiplier LEARNING OBJECTIVE: THREE The Multiplier formula: 1 1 MPC Multiplier Change in equilibriu m real GDP Change in autonomous expenditur e 1 1 MPC 39
40 The Algebra of Macroeconomic Equilibrium LEARNING OBJECTIVE: FOUR The letters with bars over them represent fixed, or autonomous, values So, represents autonomous consumption, which had a value of 1,000 in our original example Now, solving for equilibrium, we get: Y C MPC(Y) I G NX or, or, or, Y - MPC(Y) C I G NX Y( 1 MPC) C I G NX Y C I G NX 1 MPC 40
41 The Algebra of Macroeconomic Equilibrium LEARNING OBJECTIVE: THREE 1 Remember that is the multiplier Therefore an alternative expression for 1 MPC equilibrium GDP is: Equilibrium GDP = Autonomous expenditure x Multiplier 41
42 Summarizing the Multiplier Effect LEARNING OBJECTIVE: THREE 1 The multiplier effect occurs both when autonomous expenditure increases and when it decreases 2 The multiplier effect makes the economy more sensitive to changes in autonomous expenditure than it would otherwise be 3 The larger the MPC, the larger the value of the multiplier 4 The formula for the multiplier, 1/(1 MPC), is oversimplified because it ignores some real world complications, such as the effect that increasing GDP can have on imports, inflation, and interest rates 42
43 Making the Connection The Multiplier in Reverse The Great Depression of the 1930s The multiplier effect contributed to the very high levels of unemployment during the Great Depression YEAR CONSUMPTION INVESTMENT NET EXPORTS REAL GDP UNEMPLOYMENT RATE 1929 $737 billion $102 billion -$11 billion $977 billion 32% 1933 $601 billion $19 billion -$12 billion $716 billion 249% 43
44 LEARNING OBJECTIVE: FOUR Putting it into Practice Using the Multiplier Formula (Part 1) REAL GDP (Y) CONSUMPTION (C) PLANNED INVESTMENT (I) GOVERNMENT PURCHASES (G) NET EXPORTS (NX) $8,000 $6,900 $1,000 $1,000 $500 9,000 7,700 1,000 1, ,000 8,500 1,000 1, ,000 9,300 1,000 1, ,000 10,100 1,000 1,
45 LEARNING OBJECTIVE: FOUR Putting it into Practice Using the Multiplier Formula (Part 2) REALGDP (Y) CONSUMPTION (C) PLANNED INVESTMENT (I) GOVERNMENT PURCHASES (G) NET EXPORTS (NX) PLANNED AGGREGATE EXPENDITURE (AE) $8,000 $6,900 $1,000 $1,000 $500 $8,400 9,000 7,700 1,000 1, ,200 10,000 8,500 1,000 1, ,000 11,000 9,300 1,000 1, ,800 12,000 10,100 1,000 1, ,600 MPC C Y 1 1 MPC 45
46 The Multiplier Effect - The Paradox of Thrift LEARNING OBJECTIVE: FOUR In discussing the aggregate expenditure model, John Maynard Keynes argued that if many households decide at the same time to increase their saving and reduce their spending, they may make themselves worse off by causing aggregate expenditure to fall, thereby pushing the economy into a recession The lower incomes in the recession might mean that total saving does not increase, despite the attempts by many individuals to increase their own saving Keynes referred to this outcome as the paradox of thrift because what appears to be something favourable to the long run performance of the economy might be counterproductive in the short run 46
47 Deriving the Aggregate Demand Curve LEARNING OBJECTIVE: FOUR Figure The Effect of a Change in the Price Level on Real GDP 47
48 The Aggregate Demand Curve LEARNING OBJECTIVE: FOUR Figure The Aggregate Demand Curve Aggregate demand curve: A curve that shows the relationship between the price level and the level of planned aggregate expenditure in the economy, holding constant all other factors that affect aggregate expenditure 48
49 Key Terms» Aggregate demand curve» Aggregate Expenditure (AE)» Aggregate expenditure model» Autonomous expenditure» Cash flow» Inventories» Marginal Propensity to Consume (MPC)» Marginal Propensity to Save (MPS)» Multiplier» Multiplier effect» Consumption function 49
The Core of Macroeconomic Theory
PART III The Core of Macroeconomic Theory 1 of 33 The level of GDP, the overall price level, and the level of employment three chief concerns of macroeconomists are influenced by events in three broadly
More informationThe Goods Market and the Aggregate Expenditures Model
The Goods Market and the Aggregate Expenditures Model Chapter 8 The Historical Development of Modern Macroeconomics The Great Depression of the 1930s led to the development of macroeconomics and aggregate
More informationEXPENDITURE MULTIPLIERS
27 EXPENDITURE MULTIPLIERS After studying this chapter, you will be able to: Explain how expenditure plans are determined Explain how real GDP is determined at a fixed price level Explain the expenditure
More informationAggregate Expenditure and Equilibrium Output. The Core of Macroeconomic Theory. Aggregate Output and Aggregate Income (Y)
C H A P T E R 8 Aggregate Expenditure and Equilibrium Output Prepared by: Fernando Quijano and Yvonn Quijano The Core of Macroeconomic Theory 2of 31 Aggregate Output and Aggregate Income (Y) Aggregate
More informationchapter: >> Income and Expenditure WHAT YOU WILL LEARN IN THIS CHAPTER Krugman/Wells The Multiplier: An Informal Introduction
chapter: 11 >> Income and Expenditure Krugman/Wells WHAT YOU WILL LEARN IN THIS CHAPTER The nature of the multiplier, which shows how initial changes in spending lead to further changes. The meaning of
More informationAGGREGATE EXPENDITURE AND EQUILIBRIUM OUTPUT. Chapter 20
1 AGGREGATE EXPENDITURE AND EQUILIBRIUM OUTPUT Chapter 20 AGGREGATE EXPENDITURE AND EQUILIBRIUM OUTPUT The level of GDP, the overall price level, and the level of employment three chief concerns of macroeconomists
More informationMACROECONOMICS - CLUTCH CH DERIVING THE AGGREGATE EXPENDITURES MODEL
!! www.clutchprep.com CONCEPT: AGGREGATE EXPENDITURES MODEL AND MACROECONOMIC EQUILIBRIUM Aggregate expenditures (AE) represent the total in an economy The aggregate expenditures model describes the relationship
More informationChapter 11 1/19/2018. Basic Keynesian Model Expenditure and Tax Multipliers
Chapter 11 Basic Keynesian Model Expenditure and Tax Multipliers This chapter presents the basic Keynesian model and explains: how aggregate expenditure (C,I,G,X and M) is determined when the price level
More informationChapter 11 Part 2 Basic Keynesian Model Expenditure and Tax Multipliers
2/23/208 Chapter Part 2 Basic Keynesian Model Expenditure and Tax Multipliers What Happens When Things Change - When autonomous spending changes, the equilibrium level of real GDP changes. But the change
More informationEconomics 102 Discussion Handout Week 13 Fall Introduction to Keynesian Model: Income and Expenditure. The Consumption Function
Economics 102 Discussion Handout Week 13 Fall 2017 Introduction to Keynesian Model: Income and Expenditure The Consumption Function The consumption function is an equation which describes how a household
More informationIntroduction. Learning Objectives. Learning Objectives. Chapter 12. Consumption, Real GDP, and the Multiplier
Chapter 12 Consumption, Real GDP, and the Multiplier Introduction Investment spending by businesses is a key component of economic growth. Expenditures on information technology were once expected to provide
More informationchapter: Income and Expenditure
Income and Expenditure chapter: 26 11 ECONOMICS MACROECONOMICS 1. Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and
More informationECO 209Y MACROECONOMIC THEORY AND POLICY LECTURE 3: AGGREGATE EXPENDITURE AND EQUILIBRIUM INCOME
ECO 209Y MACROECONOMIC THEORY AND POLICY LECTURE 3: AGGREGATE EXPENDITURE AND EQUILIBRIUM INCOME Gustavo Indart Slide 1 ASSUMPTIONS We will assume that: There is no depreciation There are no indirect taxes
More informationKING S UNIVERSITY COLLEGE. Economics 1022B (570 & 574) Review Questions for Chapter 27
KING S UNIVERSITY COLLEGE Economics 1022B (570 & 574) G. Copplestone Review Questions for Chapter 27 Multiple Choice Questions: 1) If the marginal propensity to consume is 0.85, what change in consumption
More informationPractice Test 2: Multiple Choice
Practice Test 2: Multiple Choice 1. The expenditure multiplier equals A. 1/(slope of APE curve). B. APC-APS where APC is the average propensity to consume and APS is the average propensity to save. C.
More informationPrinciples of Macroeconomics Prof. Yamin Ahmad ECON 202 Spring 2007
Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Spring 2007 Midterm Exam II Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark
More informationChapter 23. The Keynesian Framework. Learning Objectives. Learning Objectives (Cont.)
Chapter 23 The Keynesian Framework Learning Objectives See the differences among saving, investment, desired saving, and desired investment and explain how these differences can generate short run fluctuations
More informationECO 2013: Macroeconomics Valencia Community College
ECO 2013: Macroeconomics Valencia Community College Exam 3 Fall 2008 1. The most important determinant of consumer spending is: A. the level of household debt. B. consumer expectations. C. the stock of
More informationSticky Wages and Prices: Aggregate Expenditure and the Multiplier. 5Topic
Sticky Wages and Prices: Aggregate Expenditure and the Multiplier 5Topic Questioning the Classical Position and the Self-Regulating Economy John Maynard Keynes, an English economist, changed how many economists
More informationIn this chapter, look for the answers to these questions
In this chapter, look for the answers to these questions How does the interest-rate effect help explain the slope of the aggregate-demand curve? How can the central bank use monetary policy to shift the
More information13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts
Chapter 3 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded.
More informationIntroduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 12 Consumption, Income, and the Multiplier
Roger LeRoy Miller Economics Today Twelfth Edition Chapter 12 Consumption, Income, and the Multiplier Introduction Consumption spending by households is the largest component of U.S. GDP. To the extent
More informationChapter 12 Consumption, Real GDP, and the Multiplier
Chapter 12 Consumption, Real GDP, and the Multiplier Learning Objectives After you have studied this chapter, you should be able to 1. define saving, savings, consumption, dissaving, autonomous consumption,
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
21 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory
More informationAggregate Supply and Aggregate Demand
Aggregate Supply and Aggregate Demand Econ 120: Global Macroeconomics 1 1.1 Goals Goals Specific Goals Define the expenditure multiplier and how to compute it. Explain how recessions and expansions can
More informationProfessor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 5
Economics 2 Spring 2016 Professor Christina Romer Professor David Romer SUGGESTED ANSWERS TO PROBLEM SET 5 1. The left-hand diagram below shows the situation when there is a negotiated real wage,, that
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
20 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory
More informationMidterm #2, version A, given Spring 2002 Note question #50 is from Chapter 11, which students are not responsible for on Exam 2 - Summer 02.
Midterm #2, version A, given Spring 2002 Note question #50 is from Chapter 11, which students are not responsible for on Exam 2 - Summer 02. Answers (if you think you see an error, please contact me ASAP.
More informationI. Learning Objectives II. The Income-Consumption and Income-Saving Relationships
I. Learning Objectives In this chapter students will learn: A. How changes in income affect consumption (and saving). B. About factors other than income that can affect consumption. C. How changes in real
More informationExercise 1 Output Determination, Aggregate Demand and Fiscal Policy
Fletcher School, Tufts University Exercise 1 Output Determination, Aggregate Demand and Fiscal Policy Prof. George Alogoskoufis The Basic Keynesian Model Consider the following short run keynesian model
More informationRoyal School of Administration. Macroeconomics
Royal School of Administration Macroeconomics Chapter 9 By Group 6 1. Chum Chamreun 2. Sok Piseth 3. Kith Sothearith 4. Sreng Vichhay 5. Lay Piden 6. Chheang Damy IS-MP: A Short-Run Macroeconomic Model
More information1. The most basic premise of the aggregate expenditures model is that:
1. The most basic premise of the aggregate expenditures model is that: A. The total output produced in the economy depends directly on the level of total spending B. The level of employment in the economy
More informationChapter 10 Aggregate Demand I
Chapter 10 In this chapter, We focus on the short run, and temporarily set aside the question of whether the economy has the resources to produce the output demanded. We examine the determination of r
More information11 EXPENDITURE MULTIPLIERS* Chapt er. Key Concepts. Fixed Prices and Expenditure Plans1
Chapt er EXPENDITURE MULTIPLIERS* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded. As a result: The price
More informationEC2105, Professor Laury EXAM 3, FORM A (4/10/02)
EC2105, Professor Laury EXAM 3, FORM A (4/10/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each
More informationSOLUTION ECO 202Y - L5101 MACROECONOMIC THEORY. Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER. University of Toronto June 18, 2002 INSTRUCTIONS:
Department of Economics Prof. Gustavo Indart University of Toronto June 18, 2002 SOLUTION ECO 202Y - L5101 MACROECONOMIC THEORY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationY = 71; :5Y (1 0:5)Y = 71; 500 0:5Y = 71; 500 Y = 143; 000. Note that you can get the same result if you use the formula
Basic Keynesian Model (Chapter 0): () C 4; 000 + 0:5(Y T ) since Y D Y T T 5; 000; I P 55; 000; G 20; 000 NX T otal Exports T otal Im ports 5; 000 20; 000 5; 000 AE C+I P +G+NX 4; 000+0:5(Y 5; 000)+55;
More informationArchimedean Upper Conservatory Economics, October 2016
Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The marginal propensity to consume is equal to: A. the proportion of consumer spending as a function of
More informationChapter 22. Adding Government and Trade to the Simple Macro Model. In this chapter you will learn to. Introducing Government. Government Purchases
Chapter 22 Adding Government and Trade to the Simple Macro Model In this chapter you will learn to 1. Describe the relationship between national income and government purchases and tax revenues. 2. Describe
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F. N. Gregory Mankiw. Introduction
C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F Economics N. Gregory Mankiw Introduction This chapter focuses on the short-run effects of fiscal
More informationECON 120 -ESSENTIALS OF ECONOMICS
Name ECON 120 -ESSENTIALS OF ECONOMICS CH 24 THE GOVERNMENT AND FISCAL POLICY MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Fiscal policy refers
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand. Premium PowerPoint Slides by Ron Cronovich
C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part
More informationThe Aggregate Expenditures Model. A continuing look at Macroeconomics
The Aggregate Expenditures Model A continuing look at Macroeconomics The first macroeconomic model The Aggregate Expenditures Model What determines the demand for real domestic output (GDP) and how an
More informationThe Government and Fiscal Policy
The and Fiscal Policy 9 Nothing in macroeconomics or microeconomics arouses as much controversy as the role of government in the economy. In microeconomics, the active presence of government in regulating
More informationEconS 102: Mid Term 3 Date: July 14th, Name: WSU ID:
EconS 102: Mid Term 3 Date: July 14th, 2017 Instructions Write your name and WSU ID on the paper. All questions are worth 1 point. You have 40 minutes. This test is out of 15 points. There is a total of
More information45 Line -The height of this measures disposable income
Fixed Prices and Expenditure Plans -In the Keynesian model, all firms are like the grocery store: They set their prices and sell the quantities their customers are willing to buy -If they persistently
More informationEcon 102 Exam 2 Name ID Section Number
Econ 102 Exam 2 Name ID Section Number 1. Suppose investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. The investment multiplier is: A) 10. B)
More informationProfessor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 5
Economics 2 Spring 2017 Professor Christina Romer Professor David Romer SUGGESTED ANSWERS TO PROBLEM SET 5 1. The tool we use to analyze the determination of the normal real interest rate and normal investment
More informationOVERVIEW. 1. This chapter presents a graphical approach to the determination of income. Two different graphical approaches are provided.
24 KEYNESIAN CROSS OVERVIEW 1. This chapter presents a graphical approach to the determination of income. Two different graphical approaches are provided. 2. Initially, both the consumption function and
More informationMACROECONOMICS. Aggregate Demand I: Building the IS-LM Model. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich
11 : Building the IS-LM Model MACROECONOMICS N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2013 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN: the IS curve and its relation
More informationAP Econ Practice Test Unit 5
DO NOT WRITE ON THIS TEST! AP Econ Practice Test Unit 5 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The marginal propensity to consume is equal to:
More informationEcon 98- Chiu Spring Midterm 2 Review: Macroeconomics
Disclaimer: The review may help you prepare for the exam. The review is not comprehensive and the selected topics may not be representative of the exam. In fact, we do not know what will be on the exam.
More informationEconomics 1012A: Introduction to Macroeconomics FALL 2007 Dr. R. E. Mueller Third Midterm Examination November 15, 2007
Economics 1012A: Introduction to Macroeconomics FALL 2007 Dr. R. E. Mueller Third Midterm Examination November 15, 2007 Answer all of the following questions by selecting the most appropriate answer on
More informationHomework Assignment #6. Due Tuesday, 11/28/06. Multiple Choice Questions:
Homework Assignment #6. Due Tuesday, 11/28/06 Multiple Choice Questions: 1. When the inflation rate is expected to be zero, Steve plans to lend money if the interest rate is at least 4 percent a year and
More informationThe text was adapted by The Saylor Foundation under the CC BY-NC-SA without attribution as requested by the works original creator or licensee
the CC BY-NC-SA without attribution as requested by the works original creator or licensee 1 of 19 Chapter 21 IS-LM C H A P T E R O B J E C T I V E S By the end of this chapter, students should be able
More informationPart2 Multiple Choice Practice Qs
Part2 Multiple Choice Practice Qs 1. The Keynesian cross shows: A) determination of equilibrium income and the interest rate in the short run. B) determination of equilibrium income and the interest rate
More informationFluctuations of Investment Durability Irregularity of Innovation Variability of Profits Variability of Expectations
Shifts in the Invest Demand Curve Acquisition, Maintenance and Operating Costs Business Taxes Technological Change Stock of Capital Goods on Hand Expectations Fluctuations of Investment Durability Irregularity
More informationECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder
ECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose the economy is currently
More informationProblem Set #2. Intermediate Macroeconomics 101 Due 20/8/12
Problem Set #2 Intermediate Macroeconomics 101 Due 20/8/12 Question 1. (Ch3. Q9) The paradox of saving revisited You should be able to complete this question without doing any algebra, although you may
More informationDisposable income (in billions)
Section 4 version 2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. An increase in the MPC: A. increases the multiplier. B. shifts the autonomous investment
More informationChapter 4. Determination of Income and Employment 4.1 AGGREGATE DEMAND AND ITS COMPONENTS
Determination of Income and Employment Chapter 4 We have so far talked about the national income, price level, rate of interest etc. in an ad hoc manner without investigating the forces that govern their
More informationObjectives of Macroeconomics ECO403
Objectives of Macroeconomics ECO403 http//vustudents.ning.com Actual budget The amount spent by the Federal government (to purchase goods and services and for transfer payments) less the amount of tax
More informationLecture 7: Introduction to Economic Fluctuations, The Keynesian Cross
Macroeconomics 1 Lecture 7: Introduction to Economic Fluctuations, The Keynesian Cross Dr Gabriela Grotkowska Tomasz Gajderowicz Based on slides by Mankiw, Macoreconomcis, 5e Key questions What determines
More informationChapter 11 Aggregate Demand I: Building the IS -LM Model
Chapter 11 Aggregate Demand I: Building the IS -LM Model Modified by Yun Wang Eco 3203 Intermediate Macroeconomics Florida International University Summer 2017 2016 Worth Publishers, all rights reserved
More informationLecturer: Dr. Priscilla Twumasi Baffour, Department of Economics Contact Information:
Lecturer: Dr. Priscilla Twumasi Baffour, Department of Economics Contact Information: ptbaffour@ug.edu.gh College of Education School of Continuing and Distance Education 2014/2015 2016/2017 Session Overview
More informationProduct Markets and National Output
Product Markets and National Output Chapters 11 and 12 Discussion Topics Circular flow of payments Composition and measurement of gross domestic product Consumption, saving, and investment Equilibrium
More informationCHAPTER 23 - THE SHORT-RUN MACRO MODEL. PROBLEM SET 2. a.
CHAPTER 23 - THE SHORT-RUN MACRO MODEL PROBLEM SET 2. a. Real GDP Autonomous Consumption MPC x Disposable Income Consumption = Autonomous Consumption + (MPC x Disposable Income) $0 $30 $0 $30 $100 $30
More informationEcon 102 Discussion Section 8 (Chapter 12, 13) March 20, 2015
Econ 102 Discussion Section 8 (Chapter 12, 13) March 20, 2015 The Multiplier and Shifting the Aggregate Expenditures Function The multiplier effect describes how changes in autonomous expenditures lead
More informationThe influence of Monetary And Fiscal Policy on Aggregate Demand
Lecture 11 The influence of Monetary And Fiscal Policy on Aggregate Demand Prof. Samuel Moon Jung Introduction Earlier chapters covered: the long-run effects of fiscal policy on interest rates, investment,
More informationEcon 3 Practice Final Exam
Econ 3 Winter 2010 Econ 3 Practice Final Exam No books or notes of any kind are allowed. On problems requiring calculations, you will only get credit if you show your work. Part I: Longer Answers. Please
More informationIMPORTANT INFORMATION:
Economics 1B ECS1601 Semester 1 Department of Economics IMPORTANT INFORMATION: This tutorial letter contains solutions to assignment 03 BARCODE SOLUTIONS TO ASSIGNMENT 03 QUESTIONS SEMESTER 1, 2017 3.1
More informationFEEDBACK TUTORIAL LETTER
FEEDBACK TUTORIAL LETTER 2 ND SEMESTER 2018 ASSIGNMENT 1 INTERMEDIATE MACRO ECONOMICS IMA612S 1 Course Name: Course Code: Department: INTERMEDIATE MACROECONOMICS IMA612S ACCOUNTING, ECONOMICS AND FINANCE
More informationECO 209Y MACROECONOMIC THEORY AND POLICY
Department of Economics Prof. Gustavo Indart University of Toronto October 30, 2015 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER Indicate your section of the
More informationCengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
10 1 Aggregate Expenditure & Income A dollar spent (expenditure) Translates directly into a dollar earned (income) Aggregate expenditure components Consumption, C - varies with income Investment, I - autonomous
More informationContext. Context. Aggregate Demand I slide 2
Context Chapter 9 introduced the model of aggregate demand and aggregate supply. Long run prices flexible output determined by factors of production & technology unemployment equals its natural rate Short
More informationUniversity of Toronto October 28, 2011 ECO 209Y MACROECONOMIC THEORY AND POLICY. Term Test #1 L0101 L0301 L0401 M 2-4 W 2-4 R 2-4
Department of Economics Prof. Gustavo Indart University of Toronto October 28, 2011 ECO 209Y MACROECONOMIC THEORY AND POLICY SOLUTIONS Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER Circle your section
More informationProfessor Christina Romer. LECTURE 20 PLANNED AGGREGATE EXPENDITURE AND OUTPUT April 5, 2018
Economics 2 Spring 2018 Professor Christina Romer Professor David Romer LECTURE 20 PLANNED AGGREGATE EXPENDITURE AND OUTPUT April 5, 2018 I. OVERVIEW OF SHORT-RUN FLUCTUATIONS A. GDP B. Unemployment II.
More informationECON 201: Introduction to Macroeconomics Professor Robert Gordon Final Exam: March 18, 2016
ECON 201: Introduction to Macroeconomics Professor Robert Gordon Final Exam: March 18, 2016 NAME Directions: This test is in two parts, a multiple choice question part and a short-answer part. Use this
More informationGDP accounting. GDP: market value of all newly produced goods and services produced in a given location in a specific time period
IS Curve GDP accounting GDP: market value of all newly produced goods and services produced in a given location in a specific time period GDP accounting GDP: market value of all newly produced goods and
More informationPrinciples of Macroeconomics December 17th, 2005 name: Final Exam (100 points)
EC132.02 Serge Kasyanenko Principles of Macroeconomics December 17th, 2005 name: Final Exam (100 points) This is a closed-book exam - you may not use your notes and textbooks. Calculators are not allowed.
More informationAggregate Demand. Sherif Khalifa. Sherif Khalifa () Aggregate Demand 1 / 36
Sherif Khalifa Sherif Khalifa () Aggregate Demand 1 / 36 The ISLM model allows us to build the Aggregate Demand curve. IS stands for investment and saving. The IS curve represents what is happening in
More informationProfessor Christina Romer. LECTURE 21 PLANNED AGGREGATE EXPENDITURE AND OUTPUT April 12, 2016
Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 21 PLANNED AGGREGATE EXPENDITURE AND OUTPUT April 12, 2016 I. OVERVIEW OF SHORT-RUN FLUCTUATIONS II. THE KEY ROLE OF DEMAND
More informationAggregate Demand. Sherif Khalifa. Sherif Khalifa () Aggregate Demand 1 / 35
Sherif Khalifa Sherif Khalifa () Aggregate Demand 1 / 35 The ISLM model allows us to build the AD curve. IS stands for investment and saving. The IS curve represents what is happening in the market for
More informationConsumption expenditure The five most important variables that determine the level of consumption are:
The aggregate expenditure model: A macroeconomic model that focuses on the relationship between total spending and real GDP, assuming the price level is constant. Macroeconomic equilibrium: AE = GDP Consumption
More informationECO102. Macroeconomics Lecture 5
ECO102 Macroeconomics Lecture 5 ECO201 Macroeconomics Chapter 24: The Government and Fiscal Policy ECO102 Macroeconomics The Government and Fiscal Policy Government in the Economy!! Government Purchases
More informationDeviations from full employment in a closed economy Short-run equilibrium Monetary and fiscal policy
Kevin Clinton Winter 2005 Deviations from full employment in a closed economy Short-run equilibrium Monetary and fiscal policy Some key features we can ignore in the long run are crucial in the short run:
More informationTOPIC 1: IS-LM MODEL...3 TOPIC 2: LABOUR MARKET...23 TOPIC 3: THE AD-AS MODEL...33 TOPIC 4: INFLATION AND UNEMPLOYMENT...41 TOPIC 5: MONETARY POLICY
TOPIC 1: IS-LM MODEL...3 TOPIC 2: LABOUR MARKET...23 TOPIC 3: THE AD-AS MODEL...33 TOPIC 4: INFLATION AND UNEMPLOYMENT...41 TOPIC 5: MONETARY POLICY AND THE RESERVE BANK OF AUSTRALIA...53 TOPIC 6: THE
More informationChapter 23. Aggregate Supply and Aggregate Demand in the Short Run. In this chapter you will learn to. The Demand Side of the Economy
Chapter 23 Aggregate Supply and Aggregate Demand in the Short Run In this chapter you will learn to 1. Explain why an exogenous change in the price level shifts the AE curve and changes the equilibrium
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 3312 Mcroeconomics Exam 2 Fall 2016 Prof. Crowder Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If output is currently 1000 below full
More informationFETP/MPP8/Macroeconomics/Riedel. General Equilibrium in the Short Run II The IS-LM model
FETP/MPP8/Macroeconomics/iedel General Equilibrium in the Short un II The -LM model The -LM Model Like the AA-DD model, the -LM model is a general equilibrium model, which derives the conditions for simultaneous
More informationECON 102 Tutorial 3. TA: Iain Snoddy 18 May Vancouver School of Economics
ECON 102 Tutorial 3 TA: Iain Snoddy 18 May 2015 Vancouver School of Economics Questions Questions 1-3 set-up Y C I G X M 1.00 1.00 0.5 0.7 0.45 0.15 2.00 1.65 0.5 0.7 0.45 0.30 3.00 2.30 0.5 0.7 0.45 0.45
More informationMacroeconomics: Principles, Applications, and Tools
Macroeconomics: Principles, Applications, and Tools NINTH EDITION Chapter 11 The Income- Expenditure Model Learning Objectives 11.1 Discuss the income-expenditure model. 11.2 Identify the two key components
More informationThis is IS-LM, chapter 21 from the book Finance, Banking, and Money (index.html) (v. 1.1).
This is IS-LM, chapter 21 from the book Finance, Banking, and Money (index.html) (v. 1.1). This book is licensed under a Creative Commons by-nc-sa 3.0 (http://creativecommons.org/licenses/by-nc-sa/ 3.0/)
More informationmacro macroeconomics Aggregate Demand I N. Gregory Mankiw CHAPTER TEN PowerPoint Slides by Ron Cronovich fifth edition
macro CHAPTER TEN Aggregate Demand I macroeconomics fifth edition N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2002 Worth Publishers, all rights reserved In this chapter you will learn the IS curve,
More informationThis is Appendix B: Extensions of the Aggregate Expenditures Model, appendix 2 from the book Economics Principles (index.html) (v. 2.0).
This is Appendix B: Extensions of the Aggregate Expenditures Model, appendix 2 from the book Economics Principles (index.html) (v. 2.0). This book is licensed under a Creative Commons by-nc-sa 3.0 (http://creativecommons.org/licenses/by-nc-sa/
More informationTEST 2. Name: R: ID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Principle of Macroeconomics TEST 2 ibrahim Ozayturk Name: R: ID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If Inventory investment is higher
More information3 Macroeconomics SAMPLE QUESTIONS
MULTIPLE-CHOICE UNIT E07 Unit Summative Assessment Sample Multiple-Choice Questions Circle the letter of each correct answer. 1. Which of the following best describes aggregate supply? (A) The amount buyers
More informationChapter 10 Aggregate Demand I CHAPTER 10 0
Chapter 10 Aggregate Demand I CHAPTER 10 0 1 CHAPTER 10 1 2 Learning Objectives Chapter 9 introduced the model of aggregate demand and aggregate supply. Long run (Classical Theory) prices flexible output
More informationLearning Objectives. 1. Describe how the government budget surplus is related to national income.
Learning Objectives 1of 28 1. Describe how the government budget surplus is related to national income. 2. Explain how net exports are related to national income. 3. Distinguish between the marginal propensity
More informationECO 209Y MACROECONOMIC THEORY AND POLICY
Department of Economics Prof. Gustavo Indart University of Toronto October 22, 2010 ECO 209Y MACROECONOMIC THEORY AND POLICY Term Test #1 LAST NAME FIRST NAME STUDENT NUMBER Circle your section of the
More information