econ2010 exam 3 cheat sheet

# econ2010 exam 3 cheat sheet - C = a bYD is consumption...

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C = a + bY D is consumption function. Y D = C + S is identity. Classical theory assumes there will be full employment when economy is in equilibrium. MPC = C (consumption) / Y D (disposable income) or 8000 / 10,000 = 0.8 Equilibrium Condition: S = Des. I, S = 0.2Y - \$400B, Des. I = \$400B 0.2Y - \$400B = \$400B 0.2Y = \$800B, Y E = \$4000B Fed raises interest rate (i) b/c the Fed wanted to cause an upward movement along the desired investment demand curve. Of X & M, which is a function of Y when ignoring autonomousity? M is the function Increase in the productivity of capital = rightward (upward) shift of desired investment demand curve. Aggregate Expenditure (AE) @ Y F : AE = C + Des. I C = \$150B + 0.9Y, Des. I = \$200B = 150B + 0.9Y + 200B full employment level = Y F = \$4000B = 350B + 0.9Y, [email protected] F = 350B + 0.9(4000), = 350B + 3600 = \$3950B Undesired in inventories @ Y F : (leakages – injections) S = .1Y – 150B S = .1(4000) – 150B S = 250B S – Des. I = 250B - 200B = \$50B Increase in autonomous desired spending needed to cause equilibrium of Y to = Y F ? Recession Gaps = Y F – AE @ Y F = 4,000B – 3,950B = 50B Closed economy, GBS = 0, no transfers, tax = prop. inc. tax on personal income, f = 20%, C = 50B + 0.9Y D (b) Y D is disposable income. If total income (Y) were to rise by \$1000, how much would C rise?
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