GDP Determination - P.96 • John Keynes wrote General...

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Econ 4.3 Monday, February 22, 1999 Announcements: Homework Assignment #3 is posted on the webpage and is due on Wednesday. The Chapter 8 and 9 quizzes are online. The next exam will be Friday, February 26th. Voluntary Pre-Exam Review Session , Thursday, February 25, in 110 Wartik; 6:30 - 8:25 PM. Heather Zackal, the TA, will have a temporary change in her office hours. They will be Wednesday from 2:00-3:30. Lecture notes: GDP Determination Income, consumption, relationship Income and Consumption hypothesis Income, consumption and saving o Consumption Function Marginal Propensity to consume o Saving Function Marginal propensity to Save o MPC and MPS relationship o Investment determinant o Preliminary Keynesian Models GDP and Consumption Close statistical relationship Consumption is under GDP Disposable Personal Income and Consumption Closer relationship Consumption is under DPI JM Keynes, Fundamental Law of Consumption. General Theory
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Unformatted text preview: . P.96. • John Keynes wrote General Theory of Economy , one of the most influential books of this century • First one to have major original insight into why economy might get stuck into equilibrium quantity of a less than full economy • "The fundamental psychological law upon which we are entitled to depend with great confidence both a priori from our knowledge of human nature and from the detailed facts of experience is that men are disposed, as a rule and on the average, to increase their consumption as their income increases, but not by as much as the increase in their income." Consumption, Saving, Disposable Income (Annual, $ Billions) Y=actual expenditure on output C=consumption S=saving $0 100-100 100 175-75 200 250-50 300 325-25 400 400 500 475 25 600 550 50 700 625 75 800 700 100...
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