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Unformatted text preview: suppose G increasesthen By equation (1), Y increasesbut by equation (2), if Y increases, C increasesby equation (1) if C increases, Y increases againand so oneconomist call this “fredbank”size of “Keynesian multiplier” depnds on B in equation (2)b is the “marginal propensity to consume”MPCpart of the increase in income that is consumed Y C I G AE 1 1 2 1 .5 1 1 2.5 2 1 1 1 3 3 1.5 1 1 3.5assume I and G do not depend on Ynote : MPC = .5because I and G do not vary with Y, called “autonomons” expendituresand C as “induced” expenditures Y=C + I+ Gso C + I + G is aggregate expenditures (AE)in equilibrium, AE=Y...
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This note was uploaded on 12/12/2008 for the course ECON 29486 taught by Professor Denniswilson during the Fall '06 term at Western Kentucky University.
 Fall '06
 DennisWilson

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