Econ306Lecture8 - International Economics II Lecture Notes...

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International Economics II Lecture Notes 8 Alper Duman July 29, 2009 Alper Duman International Economics II Lecture Notes 8
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National Income and the Current Account I In a Keynesian simple-open economy, desired aggregate expenditures (E) , consist of consumption (C), investment (I), government spending (G), and export spending by foreign citizens on the country’s exports (X). However, (M) domestic spending on imports should be extracted since the imports are expenditures on foreign countries’ goods and services. E = C + I + G + X - M (1) I Consumption depends on the disposable income of households: C = f ( Y d ) (2) where Y d = Y - T Alper Duman International Economics II Lecture Notes 8
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I The general expression of the Keynesian Consumption Function is C = a + bY d (3) I a is the autonomous consumption spending; that may depend on population, cultural habits, wealth, interest rates I b is known as the marginal propensity to consume, MPC I MPC = Δ C Δ Y d (4) I Consequently marginal propensity to save, MPS is defined as MPS = Δ S Δ Y d (5) Alper Duman International Economics II Lecture Notes 8
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Econ306Lecture8 - International Economics II Lecture Notes...

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