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Menu_24_Mar_06 - I p = Planned investment i ii above 5...

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TODAY’S MENU: Friday 24 March 2006 I. BUSINESS A. Practice Problems 1. Chapter 13: 1-9 B. Jobless claims II. SUBSTANCE A. Macroeconomy in the Short Run: Basic Ideas 1. Okun’s Law a. Definition b. Example B. Model of Macroeconomy 1. Explain real GDP, unemployment rate, and inflation rate 2. Assumptions a. Planned Aggregate Expenditure (PAE) fluctuates b. In short run, inflation rate constant 3. Recall: y = C+ I + G + X – IM (Actual real GDP; production; supply) a. Where: I = Total investment i. Business purchases of goods and services ii. New housing iii. Inventory change 4. PAE: Total spending on real GDP (buying; total demand) a. PAE = C + I p + G + X – IM i. Where:
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Unformatted text preview: I p = Planned investment ( i + ii above) 5. Equilibrium: Quantity supplied = Quantity demanded; y = PAE; I = I p a. If I – I p > 0, then inventory accumulation b. If I – I p < 0, then inventory depletion 6. Components of PAE a. Consumption Function i. Autonomous consumption ii. Induced consumption: c(y – T) iii. Where: c = Marginal Propensity to Consume (MPC) iv. Where:(y – T) = Disposable income b. Planned Investment, Government Spending, Net Exports i. All determined exogenously (outside of model) III: NEXT TIME A. Continue Chapter 13: “Spending and Output in the Short Run”...
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