THE KEYNESIAN MODEL IN THE SHORT AND LONG RUN
|
|
- Roberta Anderson
- 6 years ago
- Views:
Transcription
1 Lecture: THE KENESIAN MODEL IN THE SHORT AND LONG RUN In the short run actual GDP,, may be lower or higher or equal to full-employment GDP,. The aim of the Keynesian model in the short run is to explain short-run fluctuations in production around a long-run trend. The reason why actual GDP may deviate from full-employment GDP in the short run, is that prices and nominal wages are assumed to be not fully flexible in the short run. We start by assuming that P and W are fixed in the short run. In this case aggregate demand determines output at a fixed price level. Thus, we assume that the short-run supply curve (the MC-curve) is horizontal. A flat MC-curve is not unreasonable as when firms increase output they in reality increase both K and L as some part of the stock of physical capital is often unused in a recession. In a recession firms close production plants, which makes both machines and workers unemployed. When firms expand production they open up closed plants and employ workers. So MC needs not increase a lot because diminishing MPL. Lecture: BUILDING THE KENESIAN MODEL: The simple Keynesian model for a closed economy without its own currency: Assumption: The short-run supply curve is horizontal (= P is fixed), which implies that aggregate demand alone determines output. The model also assumes that the real interest rate is fixed; and that planned investment is an exogenous variable. The money market plays no explicit role here. The model is thus relevant for small economies without monetary authorities that are not or far from full-employment. If economies are at full-employment government spending cannot increase aggregate production. For example: the model is relevant for small municipalities within Sweden or small countries within the Euro-area or small states within the US states. If they are big, expansionary fiscal policies might increase the real interest rate. The model how income is determined for given levels of the exogenous variables: government purchases (G), net taxes (T) and planned investment, I (planned). Actual expenditure () is the amount households, firms, and the government spends on newly produced goods and services (GDP). Planned expeditures is the amount households, firms and the government would like to spend on newly produced goods and services. The economy is in equilibrium when Actual expenditures () = Planned expeditures (E) NOTE: AGGREGATE DEMAND (AD) = PLANNED EXPENDITURES (E)
2 , E Actual Expenditure, = Planned Expenditure, E = C(-T)+ I(pl.) + G 2 1 Income, Output, Actual expenditures () = Planned expenditures (E) + involuntary inventory investment (positive or negative). Actual investment = I(planned) + involuntary inventory investment (which is zero, negative or positive). Planned Expenditure (E) = AD = C( T) I ( pl.) G C MPC ( t) I ( pl.) G Note that: I ( pl.) I ( planned ). We could add NX as an exogenous variable. If we rewrite the equation above: E AD I( pl.) G, where 0<MPC<1. C MPC 1 t Intercept How is the equilibrium achieved? Slope At 2 planned expenditures (E) > actual expenditures () involuntary depletion of inventories, I( pl.) > I (actual) firms increase production, At 1 planned expenditures (E) < actual expenditures () involuntary inventory build-up, I( pl.) < I (actual) firms decrease production,
3 The goods market Equilibrium implies: = E (=AD) E AD C I( pl.) G MPC (1 t) The effect on of increased government spending (G):, E Actual Expenditure, =E G A B Planned Expenditure, E = C(-T) + I(pl.) + G0 1 Income, Output, E AD I( pl.) G C MPC 1 t Intercept Slope An increase in government purchases of G raises planned expenditures (E) = Aggregate Demand (AD) by that amount for any given level of income (): the E-schedule shifts up. The equilibrium moves from A to B and income rises. Note that the increase in income exceeds the increase in government purchases G. Thus, fiscal policy has a multiplied effect on income. This is because a higher income increases private consumption, C((1-t)). =C + G. The multiplier process: If government spending (G) increase by 1 $, you might expect equilibrium output () to also rise by 1$. But it does not: Initially planned expenditures (E) increases by G, and income increases by the same amount. A higher income increases consumption (and thereby planned expenditures/ad) by MPC(1-t)G, which raises again. This second increase in income of MPC(1-t)G again raises consumption: by (MPC(1-t))(MPC(1-t)G), which raises income and so on.
4 The change in equilibrium is: G(1 MPC(1 t) MPC(1 t) MPC(1 t)...) Using the expression for the sum of an infinite series: 1 MPC G, 0<MPC<1. E.g., MPC=0.8 G 1 1 t 1 MPC 1 1 t 1 The multiplier effect operates fully if the factors of production are not fully utilized; that is, when the short-run aggregate supply curve is horizontal. Lecture: Solving for equilibrium mathematically and deriving multipliers: Goods market Equilibrium: = E=AD E AD C( t) I ( pl.) G NX E AD C MPC (1 t) I ( pl.) G NX This is one equation with one unknown variable (one endogenous variable):. 1 I( pl.) G NX MPC t C (1 1 ) C I( pl.) G NX MPC t C I( pl.) GNX 1MPC 1 t is equilibrium, the value of which implies equilibrium in the goods market. The solution implies that the unknown/endogenous variable,, is expressed as a function of the exogenous variables; the variables that are determined outside the model.
5 What happens to equilibrium when the exogenous variables change? C I ( pl.) GNX 1MPC 1 t The government spending multiplier If Ct I ( pl.) 0 G 1 1 t MPC G 1 MPC 1 1t 1 Summary: Factors that increase AD and thereby the equilibrium income (): Increased I ( pl.), C, G, MPC, and NX, and lower t. The saving function: Households use their disposable income to saving and consumption: T t S C S C MPC (1 t) Thus, the private-saving function (S) is S C (1 MPC) ( t) A LESSON IN THIS MODEL: If government spending increases by 1 dollar, aggregate demand and output may increase by more than 1 dollar. Of course if is at fullemployment there is complete crowding-out. Leftist parties talk often about multipliers, when they want a larger government sector. They rarely mention that increased G may crowd out I and NX, as well as create inflation.
6 THE KENESIAN MODEL IN THE SHORT RUN CONTINUED: INTRODUCING THE MONE AND BOND MARKET INTO THE MODEL THE IS-LM-MODEL If the closed economy has its own currency and a central bank, the model below is relevant. Now we have 2 markets: the goods market and the money (and bond) market, which interact: For example: A higher income () increases the real money demand which results in a higher interest rate (= real interest rate) when M/P is fixed, which lowers I(planned): Our equilibrium requires both these markets to be in equilibrium. As the bond market is in equilibrium when the money market is in equilibrium it is sufficient that we only explicitly study the money market. Assumptions: Short run: P is fixed. 2 markets: Equilibrium in the goods market: =E=C(-T)+I(r)+G.. Equilibrium in the money market: M/P = L(r,) Real interest rate (r)=nominal interest rate (i) inflation rate = nominal interest rate Note: since P is assumed to be constant, the inflation rate is 0, and the real interest rate equals the nominal interest rate. Equation system with the endogenous variables:, r, I(r), C(-T). Exogenous variables determined outside the model: M determined by the central bank.g, t are determined by the government. P is fixed in the short run. A simpler and more realistic model than IS-LM-model would be to assume that the Central Bank sets the nominal interest rate instead of chooses nominal money supply (M). That is, the central bank chooses the nominal interest rate and provides whatever money supply that is consistent with the chosen interest rate. Such a model is more realistic and another advantage is that we do not assume that the P is constant. Instead we assume that inflation is sticky. THE IS-MP (=Monetary Policy)-model In the short run: i t, r t because t sticky/constant AD i, r t because t sticky/constant AD t
7 THE IS-LM-model continued: Lecture: Analysis of expansionary fiscal policy: a higher G., E Actual Expenditure, =E G+ A B Planned Expenditure, E = C(-T) + I(r0) + G0 1 Income, Output, If G AD= (C(-T) + I(r)+G) at given level of When AD the real money demand, L(r,) r I. In the new short run equilibrium (B): r is higher, I is lower, G, C, and higher than before. increases by less than G 1 MPC (1 t) crowded out ) due to a higher interest rate. because private investment falls ( is
8 i M/P i i M/p PPP L(i,1 L(i,0 ))' ) M/p PPP Variable Old short-and long-run Equilibrium (A) New short-run Equilibrium (B) G G0 <G1 0 < 1 Interest rate R0 <R1 I I0 >I1 C C(0-T) <C(1-T) P P0 =P1 National saving S0=I0 >S1=I1
9 Lecture: Short run effects of expansionary monetary policy Assume that nominal money supply (M) is increased: Note that the picture shows the opposite, a lower nominal money supply. Recall that the price level (P) is assumed to be constant in the short run. r Supply' Supply M/P Demand, L (r,) M/P If M (M/P) nominal interest (=real interest rate when P is constant) I(r), AD= (C(-T) + I(r)+G) at a given level of P, which increases, which increases real money demand; which pushes up the interest somewhat., E Actual Expenditure, =E + A B Planned Expenditure, E = C(-T) + I(r0) + G 1 Income, Output,
10 Variable Old short-and long-run Equilibrium (A) New short-run Equilibrium (B) 0 < 1 Interest rate R0 >R1 I I0 <I1 C C(0-T) <C(1-T) P P0 =P1 M/P M0/P0 <M1/P0 A MORE FORMAL APPROACH TO THE KENESIAN MODEL IN THE SHORT RUN FOR A CLOSED ECONOM: THE IS-LM-MODEL. 2 markets: Equilibrium in the goods market: =C(-T)+I(r)+G Equilibrium in the money market: M/P=L(i,) Real interest rate(r) =nominal interest rate (i)-inflation rate=i Note: since P is assumed to be constant, the inflation rate is 0, and the real interest rate equals the nominal interest rate. Assume now: planned investment depends on the real interest rate: I(r). An increase in the interest rate (in graph a), lowers planned investment, which shifts planned expenditure downward (in graph b) and lowers income (in graph c). (a) r (b) E (c) r =E Planned Expenditure, E = C + I + G Income, Output, The IS curve shows the equilibriums in the goods market. I(r) Investment, I IS Income, Output,
11 If r I(r) so that AD (= planned expenditures) at the old equilibrium AD< at the old equilibrium Lecture: Mathematical Derivation of IS-curve: Equilibrium in the goods market: Before: E AD C MPC ( t) I ( pl.) G NX Now if I depends on r: E AD C MPC ( t) I d r G NX where d>0. I G NX I G NX C d r C d r 1MPC 1 t 1MPC 1 t 1MPC 1 t The equation above is the EQUATION FOR THE IS-CURVE: When r=0, then C I GNX 1 1 t MPC If C, or I, or G, or t or NX this intercept increases. When =0, then r C I G NX d
12 Real money demand: d ( M / P) L( r, ) The quantity of real money demanded is negatively related to the nominal interest rate (because it is the opportunity cost of holding money) and positively related to income (because of transactions demand). Along a LM-curve real money supply, M/ P, equals real money demand: M / P L( r, ) The LM-curve has a positive slope as an increase in increases Real money demand, which means that the interest rate has to increase to lower real money demand to the same extent so that it continues to be equal to the real money supply ( M/ P), which is fixed along a given LM-curve. Nominal money supply ( M ) is assumed to be exogenous as it is determined by the Central Bank. The price level is also assumed to be fixed. Thus, the supply of real money balances, M/ P, is assumed to be exogenously given; that is, determined outside the model. The cost of holding real money is actually the nominal interest rate and not the real interest rate. However, as the price level is fixed in the model, the real interest rate equals the nominal interest rate.
13 Note: i = r (=real interest rate) as P P =0 as P is assumed to be fixed. If M/ P, LM-curve shifts to the right. Mathematical derivation of the LM-curve: Assume: L( r, ) e f r, where e> 0 and f > 0. In equilibrium; that is, along the LM-curve: M / P L( r, ) e f r Solving for r: r 1 (M / P ) e f f Intercept Slope The equation above is the equation for the LM-curve. If / M P, the intercept becomes more negative. Thus, the LM-curve shifts to the right.
14 r IS LM(P 0 ) r 0 0 The intersection of of the the IS IS curve/equation, = C (-T) + I(r) + G and the the LM curve/equation M/P = L(r, ) ) determines the the level of of aggregate demand. The intersection of If C(-T) at a given level of, e.g. if T of the the IS IS and LM curves, or if I(r) at a given r, if G represents simultaneous equilibrium in in the the market for for goods and services and in in the the market for for real money balances for for given values of of AD government at a given level of : the IS-curve shifts to the right. spending, taxes, the the money supply, and the the price level. A change in the exogenous variables and parameters: government (G), Money supply (M), the price level (P), the tax rate (t), the autonomous level of investment ( I ), C and MPC changes the short run equilibrium.
15 +G Consider an increase in government purchases. This will raise the level of income by G/(1- MPC) r IS IS LM A B The IS curve shifts to the right by G/(1- MPC) which raises income and the interest rate. increases by less than G 1 MPC because private investment falls ( is crowded out ) due to a higher interest rate. Here we assume fixed T; that is, a T that does not depend on. The economic mechanism: If G aggregate demand at given level of real money demand r investment Comparing equilibrium A with equilibrium B: 0 < 1 C(0-T) < C(1-T) R0 < r1 I(r0) > I(r1) National saving0 > national saving1 Note that national saving=-c-g=i
16 +M Consider an increase in the money supply. r IS LM LM A The LM curve shifts downward and lowers the interest rate which raises income. Why? Because when the Fed increases the supply of money, people have more money than they want to hold at the prevailing interest rate. As a result, they start depositing this extra money in banks or use it to buy bonds. The interest rate r then falls until people are willing to hold all the extra money that the Fed has created; this brings the money market to a new equilibrium. The lower interest rate, in turn has ramifications for the goods market. A lower interest rate stimulates planned investment, which increases planned expenditure, production, and income. B M P r so that real money demand and becomes equal to M/ P I(r), If / aggregate demand at a given level of.. Comparing equilibrium A with equilibrium B: 0 < 1; C(0-T) < C(1-T) R0 > r1; I(r0) < I(r1) National saving0 < national saving1 DO EXERCISE 11.3
17 THE KENESIAN MODEL IN THE SHORT RUN: FROM IS-LM-curve to the AD-curve in the P-diagram. We use the P-diagram to analyze long-run effects: ou probably noticed from the IS and LM diagrams that r and were on the two axes. Now we re going to bring a third variable, the price level (P) into the analysis. We can accomplish this by linking both twodimensional graphs. r P P 2 P 1 IS B B LM(P 2 ) A A LM(P 1 ) AD To derive AD, start at point A in the top graph. Now increase the price level from P 1 to P 2. An increase in P lowers the value of real money balances, and, shifting LM leftward to point B. Notice that r increased. Since r increased, we know that investment will decrease as it just got more costly to take on various investment projects. This sets off a multiplier process since -I causes a. The - triggers -C as we move up the IS curve. The +P triggers a sequence of events that end with a -, the inverse relationship that defines the downward slope of AD.
18 Lecture: The Short run equilibrium in the IS-LM-model in one equation: Equilibrium in the goods market; that is, along the IS-curve: I G NX I G NX C d r C d r 1MPC 1 t 1MPC 1 t 1MPC 1 t In equilibrium; that is, along the LM-curve: M / P L( r, ) e f r Solving for r: r 1 (M / P ) e f f Intercept Slope Now substitute the LM-curve into the IS-curve to solve for equilibrium as a function of the exogenous variables and parameters: 1 d e C I G NX d M / P (1 MPC (1 t )) f 1 MPC (1 t) (1 MPC (1 t)) f I G NX d ( M / P) (1 MPC (1 t)) f f (1 MPC) d e C f (1 MPC 1 t) 1 MPC (1 t) f ( CI G NX ) d M / P f (1 MPC (1 t)) d e f (1 MPC 1 t) d e This is the AD-curve in the P-diagram. If C, or MPC, or t, or I, or G, or NX or M equilibrium increases. The AD-curve in the P diagram shifts out. If P equilibrium : Movement along the AD-curve in the P-diagram.
19 Solving for equilibrium r by inserting the expression for equilibrium into the equation for the equation that shows equilibrium in the money market: r 1 / e ( ) M P f CI GNX d M / P f f f (1 MPC (1 t)) d e f (1 MPC) d e which can be simplified: THE LONG RUN EQUILIBRIUM IN THE LONG RUN PRICES AND WAGES ARE FLEXIBLE The Keynesian model in the long run = classical model see ch. 3 When is larger (lower) than the full-employment, the nominal wages increase (decrease) which shifts the MC-curve/SRAS-curve upwards (downwards), which increases (decreases) the price level. A higher (lower) price lowers (increases) M/P which increases (decreases) the real interest rate, and thereby lowers (increases) private investment.
20 Short and long run effects of less thriftiness: of C : r IS IS' C LM(P2) LM(P0) Short Run: Long Run: P P 2 P 0 LRAS C SRAS + P 0 r + C + I
21 Short and long run effects of expansionary monetary policy If M : (M/P) nominal interest (=real interest rate when P is constant) I(r), AD= (C(-T) + I(r)+G) at a given level of P, which increases, which increases In the short run: movement from A to B., C(-T), and I(r)=S increase, and r decreases in the short run. For the variables, P and r, you can read the effects right off the diagrams. 0, because rising P shifts LM to left, returning to as required by LRAS. r P +, in order to eliminate the excess demand at P 0. r 0, reflecting the leftward shift in LM due to +P, restoring r to its original level. C 0, since both and T are back to their initial levels (C=C(-T)). I 0, since or r has not changed. P Variable Remember that LR is the movement from A to C. Notice that the only LR impact of an increase in the money supply was an increase in the price level. Old short-and longrun Equilibrium (A) New short-run Equilibrium (B) 0 < 1 2=0 Interest rate R0 >R1 r2=r0 I I0 <I1 I2=I0 C C(0-T) <C(1-T) C(0-T) P P0 =P1 <P2 M/P M0/P0 <M1/P0 M0/P0 A = C New long-run equilibrium (C) In the long run P increases until M/P becomes identical to M0/P0. Thus, An increased nominal money supply has no effect on real variables in the long run P 2 P 0 IS A C B LRAS B LM (P0) LM SRAS AD AD
22 Lecture: Analysis of expansionary fiscal policy: a higher G. The short and long-run effects on increased government spending (G) P P 0 LRAS A C B = F (K,L) SRAS AD=C(-T)+I(r)+G1 AD=C(-T)+I(r)+G0 Variable Old short-and longrun Equilibrium (A) New short-run Equilibrium (B) G G0 <G1 = G1 0 < 1 2=0 Interest rate R0 <R1 <r2 I I0 >I1 >I2 C C(0-T) <C(1-T) C(0-T) P P0 =P1 <P2 National saving S0=I0 >S1=I1 >S2=I2 New long-run equilibrium (C) In the long run there is no effect on. The increase in G is completely offset by a decrease in I. See chapter 3.
23 Read by yourselves: The short and long-run effects of lower net taxes (t): If t AD= (C((1-t)) + I(r)+G) at given level of When AD the real money demand, L(r,) r I. In the new short run equilibrium (B): r is higher, I is lower, C, and are higher than before. P P 0 LRAS A C B = F (K,L) SRAS AD=C(-T1)+I(r)+G AD=C(-T0)+I(r)+G Variable Old short-and longrun Equilibrium (A) New short-run Equilibrium (B) New long-run equilibrium (C) t t0 >t1 = t1 0 < 1 2=0 Interest rate R0 <R1 <r2 I I0 >I1 >I2 C C(0(1-t0)) <C(1(1-t1)) >C(0(1-t1)) P P0 =P1 <P2 National saving S0=I0 >S1=I1 >S2=I2 In the long run there is no effect on. The increase in C is completely offset by a decrease in I. See ch. 3
24 Lecture: THE SMALL OPEN ECONOM (r= r ) with its own currency: THE MUNDELL-FLEMMING MODEL, CH. 12. Short-run effect: 2 equations: Equilibrium in the goods market: = C(-T) + I(r) + G + NX (e) Equilibrium in the money market: M/P = L(r,) Assumption 1: r = r. The small economy assumption. Assumption 2: P($) and changes in e change P ( en ) are assumed to be constant, which means that only e( en /$) P($) en P ( en) en Thus, e, e e=yen/dollar: e () appreciation (depreciation) of dollar Domestic goods become more expensive (cheaper) in foreign currency (en) and foreign goods become cheaper (more expensive) in domestic currency (dollar). Exports, Imports NX The money market equilibrium condition: M / P L( r, ), determines the equilibrium level of output (). M, P and r are exogenously given in the model. The only endogenous variable in the LM-equation is, which then is determined by the exogenous variables M/ P, and r : / (, ) If: M P L r eq M / P L( r, ) e fr M / ep( f / e) r Since M and P determine, fiscal policy (changes in G and T) has no effect on. M P L( r, ) 100 r, where Ex.: The money market equilibrium condition: If M=1000 and P=1, and / L( r, ) r = = = = 1004 If M=1100 = = 1104 Given P and r, M determines. The economics of a monetary expansion in the standard model above: If M/ Pr : r < r not profitable with financial investments in our country: the demand for our currency the currency depreciates: e NX
25 Monetary policy has a larger impact on in small open economy compared to the effect in a closed economy because there is no crowding-out of private investment in the open economy model. Fiscal Policy(G,T): Changes in G and T do not impact equilibrium (because eqb. is determined by the equation: C T I r G NX eq ( ) ( eq ) ( ) s M P L r / (, ) eq : Aggregate Demand If e.g. G aggregate demand at a given level of. But AD must be unchanged as eq is fixed. As C( eq T) and Ir ( ) also are fixed, e must increase so that NX by the same amount that G. That is, AD G NX 0 Why does a fiscal expansion increase e? If G aggregate demand at a given exchange rate. When aggregate demand real money demand domestic interest rate, r : r > r profitable with financial investments in our country the demand for our currency the currency appreciates NX Thus: Increased G or increased C(-T) due to lower net taxes crowds out net exports completely even in the short run. (In a richer model, fiscal policy impacts in the short run: A currency appreciation (e) tends to make the price on imported goods and services cheaper in the domestic currency P because prices on imported goods are included in the consumer price index M/ P: Fiscal policy has an effect on.)
26 Read by yourselves: The short and long run effect of monetary policy If M (M/P) r so that r<r financial investments in domestic country turns less profitable demand for the domestic currency the nominal exchange rate, e, depreciates (e) ( e P) / P NX, AD = (C(-T)+I(r) + G + NX(( ( e P) / P )) Variable Old short-and longrun Equilibrium (A) New short-run Equilibrium (B) New long-run equilibrium (C) 0 < 1 >2=0 Interest rate R0 =R1 =r2=r0 I I0 =I1 =I2=i0 E E0 >e1 <e2=e0 C C(0-T) <C(1-T) >C(0-T) NX NX0 <nx1 >Nx2=nx0 P P0 =P1 <P2 M/P M0/P0 <M1/P0 >M1/P2=M0/P0 Notes: Fixed exchange rates are not included in the course The large open economy is an average of the closed economy and the small open economy. To find how any policy will impact any variable, find the answer in the 2 extreme cases and take an average.
Chapter 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 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 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 informationMacroeconomics. Introduction to Economic Fluctuations. Zoltán Bartha, PhD Associate Professor. Andrea S. Gubik, PhD Associate Professor
Institute of Economic Theories - University of Miskolc Macroeconomics Introduction to Economic Fluctuations Zoltán Bartha, PhD Associate Professor Andrea S. Gubik, PhD Associate Professor Business cycle:
More informationChapter 9 Chapter 10
Assignment 4 Last Name First Name Chapter 9 Chapter 10 1 a b c d 1 a b c d 2 a b c d 2 a b c d 3 a b c d 3 a b c d 4 a b c d 4 a b c d 5 a b c d 5 a b c d 6 a b c d 6 a b c d 7 a b c d 7 a b c d 8 a b
More informationChapter 9 Introduction to Economic Fluctuations
Chapter 9 Introduction to Economic Fluctuations facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an introduction to aggregate supply in the
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 information14.02 Principles of Macroeconomics Problem Set # 2, Answers
14.0 Principles of Macroeconomics Problem Set #, Answers Part I 1. False. The multiplier is 1/ [1- c 1 (1- t)]. The effect of an increase in autonomous spending is dampened because taxes respond proportionally
More informationIII. 9. IS LM: the basic framework to understand macro policy continued Text, ch 11
Objectives: To apply IS-LM analysis to understand the causes of short-run fluctuations in real GDP and the short-run impact of monetary and fiscal policies on the economy. To use the IS-LM model to analyse
More information= C + I + G + NX = Y 80r
Economics 285 Chris Georges Help With ractice roblems 5 Chapter 12: 1. Questions For Review numbers 1,4 (p. 362). 1. We want to explain why an increase in the general price level () would cause equilibrium
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 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 information9. ISLM model. Introduction to Economic Fluctuations CHAPTER 9. slide 0
9. ISLM model slide 0 In this lecture, you will learn an introduction to business cycle and aggregate demand the IS curve, and its relation to the Keynesian cross the loanable funds model the LM curve,
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 information6. The Aggregate Demand and Supply Model
6. The Aggregate Demand and Supply Model 1 Aggregate Demand and Supply Curves The Aggregate Demand Curve It shows the relationship between the inflation rate and the level of aggregate output when the
More informationMonetary Macroeconomics Lecture 3. Mark Hayes
Diploma Macro Paper 2 Monetary Macroeconomics Lecture 3 Aggregate demand: Investment and the IS-LM model Mark Hayes slide 1 Outline Introduction Map of the AD-AS model This lecture, continue explaining
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 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 informationIntroduction to Economic Fluctuations
Chapter 9 Introduction to Economic Fluctuations slide 0 In this chapter, you will learn facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an
More informationYORK UNIVERSITY. Suggested Solutions to Part C (C3(d) and C4)
Page 1 of 5 Pages YORK UNIVERSITY Atkinson College Department of Economics ECON 2450 - Midterm Examination July 13, 2006 Suggested Solutions to Part C (C3(d) and C4) C3 (d). Derive and graph an equation
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 informationEconomics 102 Discussion Handout Week 14 Spring Aggregate Supply and Demand: Summary
Economics 102 Discussion Handout Week 14 Spring 2018 Aggregate Supply and Demand: Summary The Aggregate Demand Curve The aggregate demand curve (AD) shows the relationship between the aggregate price level
More informationEC202 Macroeconomics
EC202 Macroeconomics Koç University, Summer 2014 by Arhan Ertan Study Questions - 3 1. Suppose a government is able to permanently reduce its budget deficit. Use the Solow growth model of Chapter 9 to
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 information1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the
1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the money supply constant. Figure 1 (B) shows what the model looks like if the Fed adjusts the money supply to hold
More informationOnline Appendix A to chapter 16
Online Appendix A to chapter 16 The IS-LM Model and the DD-AA Model In this appendix we examine the relationship between the DD-AA model of the chapter and another model frequently used to answer questions
More informationKeynesian Theory (IS-LM Model): how GDP and interest rates are determined in Short Run with Sticky Prices.
Keynesian Theory (IS-LM Model): how GDP and interest rates are determined in Short Run with Sticky Prices. Historical background: The Keynesian Theory was proposed to show what could be done to shorten
More informationMacroeconomics 1 Lecture 11: ASAD model
Macroeconomics 1 Lecture 11: ASAD model Dr Gabriela Grotkowska Lecture objectives difference between short run & long run aggregate demand aggregate supply in the short run & long run see how model of
More informationLecture 12: Economic Fluctuations. Rob Godby University of Wyoming
Lecture 12: Economic Fluctuations Rob Godby University of Wyoming Short-Run Economic Fluctuations Economic activity fluctuates from year to year. In some years, the production of goods and services rises.
More informationChapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis
Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Cheng Chen SEF of HKU November 2, 2017 Chen, C. (SEF of HKU) ECON2102/2220: Intermediate Macroeconomics November 2, 2017
More informationEC 205 Macroeconomics I. Lecture 19
EC 205 Macroeconomics I Lecture 19 Macroeconomics I Chapter 12: Aggregate Demand II: Applying the IS-LM Model Equilibrium in the IS-LM model The IS curve represents equilibrium in the goods market. r LM
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 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 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 informationEconomics 102 Discussion Handout Week 14 Spring Aggregate Supply and Demand: Summary
Economics 102 Discussion Handout Week 14 Spring 2018 Aggregate Supply and Demand: Summary The Aggregate Demand Curve The aggregate demand curve (AD) shows the relationship between the aggregate price level
More informationChapter 9. Introduction to Economic Fluctuations
Chapter 9 Introduction to Economic Fluctuations 0 1 Learning Objectives difference between short run & long run introduction to aggregate demand aggregate supply in the short run & long run see how model
More informationCHAPTER 23 OUTPUT AND PRICES IN THE SHORT RUN
CHAPTER 23 OUTPUT AND PRICES IN THE SHORT RUN Expand model to make price level endogenous variable. LEARNING OBJECTIVES - Why exogenous change in price level shifts AE curve and changes equilibrium level
More informationIntroduction to Economic Fluctuations. Instructor: Dmytro Hryshko
Introduction to Economic Fluctuations Instructor: Dmytro Hryshko 1 / 32 Outline facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an introduction
More informationLecture 22. Aggregate demand and aggregate supply
Lecture 22 Aggregate demand and aggregate supply By the end of this lecture, you should understand: three key facts about short-run economic fluctuations how the economy in the short run differs from the
More informationECON 3010 Intermediate Macroeconomics Final Exam
ECON 3010 Intermediate Macroeconomics Final Exam Multiple Choice Questions. (60 points; 3 pts each) #1. How does the distinction between flexible and sticky prices impact the study of macroeconomics? a.
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 informationECON Intermediate Macroeconomic Theory
ECON 3510 - Intermediate Macroeconomic Theory Fall 2015 Mankiw, Macroeconomics, 8th ed., Chapter 12 Chapter 12: Aggregate Demand 2: Applying the IS-LM Model Key points: Policy in the IS LM model: Monetary
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 informationSAMPLE EXAM QUESTIONS FOR FALL 2018 ECON3310 MIDTERM 2
SAMPLE EXAM QUESTIONS FOR FALL 2018 ECON3310 MIDTERM 2 Contents: Chs 5, 6, 8, 9, 10, 11 and 12. PART I. Short questions: 3 out of 4 (30% of total marks) 1. Assume that in a small open economy where full
More informationWhat is Macroeconomics?
Introduction ti to Macroeconomics MSc Induction Simon Hayley Simon.Hayley.1@city.ac.uk it What is Macroeconomics? Macroeconomics looks at the economy as a whole. It studies aggregate effects, such as:
More informationChapter 3. National Income: Where it Comes from and Where it Goes
ECONOMY IN THE LONG RUN Chapter 3 National Income: Where it Comes from and Where it Goes 1 QUESTIONS ABOUT THE SOURCES AND USES OF GDP Here we develop a static classical model of the macroeconomy: prices
More informationECON 212: ELEMENTS OF ECONOMICS II Univ. Of Ghana, Legon Lecture 8: Aggregate Demand Aggregate Supply Dr. Priscilla T. Baffour
ECON 212: ELEMENTS OF ECONOMICS II Univ. Of Ghana, Legon Lecture 8: Aggregate Demand Aggregate Supply Dr. Priscilla T. Baffour Sections 1. Relaxing a Temporal Assumption Price Level is no longer fixed.
More informationMankiw Chapter 10. Introduction to Economic Fluctuations. Introduction to Economic Fluctuations CHAPTER 10
Mankiw Chapter 10 0 IN THIS CHAPTER, WE WILL COVER: facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an introduction to aggregate supply in
More information9/10/2017. National Income: Where it Comes From and Where it Goes (in the long-run) Introduction. The Neoclassical model
Chapter 3 - The Long-run Model National Income: Where it Comes From and Where it Goes (in the long-run) Introduction In chapter 2 we defined and measured some key macroeconomic variables. Now we start
More informationFETP/MPP8/Macroeconomics/Riedel. General Equilibrium in the Short Run
FETP/MPP8/Macroeconomics/Riedel General Equilibrium in the Short Run Determinants of aggregate demand in the short run A short-run model of output markets A short-run model of asset markets A short-run
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 information3. OPEN ECONOMY MACROECONOMICS
3. OEN ECONOMY MACROECONOMICS The overall context within which open economy relationships operate to determine the exchange rates will be considered in this chapter. It is simply an extension of the closed
More informationVII. Short-Run Economic Fluctuations
Macroeconomic Theory Lecture Notes VII. Short-Run Economic Fluctuations University of Miami December 1, 2017 1 Outline Business Cycle Facts IS-LM Model AD-AS Model 2 Outline Business Cycle Facts IS-LM
More informationIntermediate Macroeconomic Theory II, Winter 2009 Solutions to Problem Set 2.
Intermediate Macroeconomic Theory II, Winter 2009 Solutions to Problem Set 2. 1. (14 points, 2 points each) Indicate for each of the statements below whether it is true or false, or elaborate on a statement
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 informationNotes On IS-LM Model Econ3120, Economic Department, St.Louis University
Notes On IS-LM Model Econ3120, Economic Department, St.Louis University Instructor: Xi Wang Introduction In this class notes, I introduce IS-LM Model. For those students have optional textbook, you can
More informationBusiness Fluctuations. Notes 05. Preface. IS Relation. LM Relation. The IS and the LM Together. Does the IS-LM Model Fit the Facts?
ECON 421: Spring 2015 Tu 6:00PM 9:00PM Section 102 Created by Richard Schwinn Based on Macroeconomics, Blanchard and Johnson [2011] Before diving into this material, Take stock of the techniques and relationships
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 informationIntroduction to Economic Fluctuations
CHAPTER 10 Introduction to Economic Fluctuations Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, OU WILL LEARN: facts about the business cycle how the short
More informationECON 3010 Intermediate Macroeconomics Final Exam
ECON 3010 Intermediate Macroeconomics Final Exam Multiple Choice Questions. (60 points; 3 pts each) #1. An economy s equals its. a. consumption; income b. consumption; expenditure on goods and services
More informationThe Aggregate Demand/Aggregate Supply Model
CHAPTER 27 The Aggregate Demand/Aggregate Supply Model The Theory of Economics... is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw
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 informationAP Macroeconomics. Scoring Guidelines
2018 AP Macroeconomics Scoring Guidelines College Board, Advanced Placement Program, AP, AP Central, and the acorn logo are registered trademarks of the College Board. AP Central is the official online
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Econ 330 Spring 2015: FINAL EXAM Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose a report was released today that
More informationAggregate Supply and Demand
Aggregate demand is the relationship between GDP and the price level. When only the price level changes, GDP changes and we move along the Aggregate Demand curve. The total amount of goods and services,
More informationECON 3010 Intermediate Macroeconomics Final Exam
ECON 3010 Intermediate Macroeconomics Final Exam Multiple Choice Questions. (60 points; 2 pts each) #1. Which of the following is a stock variable? a) wealth b) consumption c) investment d) income #2.
More informationAggregate Demand I, II March 22-31
March 22-31 The Keynesian Cross Y=C(Y-T)+I+G with I, T, and G fixed Government-purchases multiplier Y/ G (if interest rate is fixed) Tax multiplier Y/ T (if interest rate is fixed) Marginal propensity
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 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 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 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 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 informationKOÇ UNIVERSITY ECON 202 Macroeconomics Fall Problem Set VI C = (Y T) I = 380 G = 400 T = 0.20Y Y = C + I + G.
KOÇ UNIVERSITY ECON 202 Macroeconomics Fall 2007 Problem Set VI 1. Consider the following model of an economy: C = 20 + 0.75(Y T) I = 380 G = 400 T = 0.20Y Y = C + I + G. (a) What is the value of the MPC
More informationECON 3560/5040 Week 8-9
ECON 3560/5040 Week 8-9 AGGREGATE DEMAND 1. Keynes s Theory - John Maynard Keynes (1936) criticized classical theory for assuming that AS alone capital, labor, and technology determines national income
More informationSHORT-RUN FLUCTUATIONS. David Romer. University of California, Berkeley. First version: August 1999 This revision: January 2018
SHORT-RUN FLUCTUATIONS David Romer University of California, Berkeley First version: August 1999 This revision: January 2018 Copyright 2018 by David Romer CONTENTS Preface vi I The IS-MP Model 1 I-1 Monetary
More informationa) Calculate the value of government savings (Sg). Is the government running a budget deficit or a budget surplus? Show how you got your answer.
Economics 102 Spring 2018 Answers to Homework #5 Due 5/3/2018 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework
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 informationECS2602. Tutorial letter 201/1/2018. Macroeconomics. Department of Economics First semester ECS2602/201/1/2018
ECS2602/201/1/2018 Tutorial letter 201/1/2018 Macroeconomics ECS2602 Department of Economics First semester Answers to Assignment 01 Answers to Assignment 02 Answers to Self-assessment Assignment 04 BARCODE
More informationECON 3010 Intermediate Macroeconomics Chapter 10
ECON 3010 Intermediate Macroeconomics Chapter 10 Introduction to Economic Fluctuations Facts about the business cycle GDP growth averages 3 3.5 percent per year C (consumption) and I (Investment) fluctuate
More informationThe Mundell Fleming Model. The Mundell Fleming Model is a simple open economy version of the IS LM model.
International Finance Lecture 4 Autumn 2011 The Mundell Fleming Model The Mundell Fleming Model is a simple open economy version of the IS LM model. I. The Model A. The goods market Goods market equilibrium
More informationPutting the Economy Together
Putting the Economy Together Topic 6 1 Goals of Topic 6 Today we will lay down the first layer of analysis of an aggregate macro model. Derivation and study of the IS-LM Equilibrium. The Goods and the
More informationTOPIC 9. International Economics
TOPIC 9 International Economics 2 Goals of Topic 9 What is the exchange rate? NX back!! What is the link between the exchange rate and net exports? What is the trade deficit? How do different shocks affect
More informationUniversity of Toronto July 21, 2010 ECO 209Y L0101 MACROECONOMIC THEORY. Term Test #2
Department of Economics Prof. Gustavo Indart University of Toronto July 21, 2010 SOLUTIONS ECO 209Y L0101 MACROECONOMIC THEORY Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total
More informationIntermediate Macroeconomics-ECO 3203
Intermediate Macroeconomics-ECO 3203 Homework 3 Solution, Summer 2017 Instructor, Yun Wang Instructions: The full points of this homework exercise is 100. Show all your works (necessary steps to get the
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 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 informationChapter 9 Introduction to Economic Fluctuations
art IV Business Cycle Theory: Short Run Chapter 9 Introduction to Economic Fluctuations Zhengyu Cai h.d. Institute of Development Southwestern University of Finance and Economics All rights reserved http://www.escience.cn/people/zhengyucai/index.html
More informationNotes From Macroeconomics; Gregory Mankiw. Part 4 - BUSINESS CYCLES: THE ECONOMY IN THE SHORT RUN
Part 4 - BUSINESS CYCLES: THE ECONOMY IN THE SHORT RUN Business Cycles are the uctuations in the main macroeconomic variables of a country (GDP, consumption, employment rate,...) that may have period of
More informationTradeoff Between Inflation and Unemployment
CHAPTER 13 Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment Questions for Review 1. In this chapter we looked at two models of the short-run aggregate supply curve. Both models
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 informationSuggested Solutions to Assignment 3
ECON 1010C Principles of Macroeconomics Instructor: Sharif F. Khan Department of Economics Atkinson College York University Summer 2005 Suggested Solutions to Assignment 3 Part A Multiple-Choice Questions
More informationPrinciples of Macroeconomics December 15th, 2005 name: Final Exam (100 points)
EC132.01 Serge Kasyanenko Principles of Macroeconomics December 15th, 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 informationdownload instant at
Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The aggregate supply curve 1) A) shows what each producer is willing and able to produce
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 informationAssumptions of the Classical Model
Meridian Notes By Tim Qi, Amy Young, Willy Zhang Economics AP Unit 4: Keynes, the Multiplier, and Fiscal Policy Covers Ch 11-13 Classical and Keynesian Macro Analysis The Classic Model the old economic
More informationThe 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 informationEconomics 102 Summer 2014 Answers to Homework #5 Due June 21, 2017
Economics 102 Summer 2014 Answers to Homework #5 Due June 21, 2017 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the
More informationQuestions and Answers
Questions and Answers Chapter 1 Q1: MCQ Aggregate demand 1. The aggregate demand curve: A) is up-sloping because a higher price level is necessary to make production profitable as production costs rise.
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 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 information