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ECON 205 Lecture (4.9.2008)

ECON 205 Lecture (4.9.2008) - the economy Determinants of...

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ECON-205 Lecture (4-9-2008) 1929 “Great Depression” What caused the depression? - There was a stock market crash What could economists do about this? Symptoms of the Great Depression - Contraction of real output o In a matter of 4 years, GDP went down by 30% - Widespread unemployment - Prices, wages fell (deflation) John Maynard Keynes - His theory is what we now know today as “Keynesian Economics” o Wages and prices are not flexible (rather, they are sticky ) This meant that people had to be laid off if aggregate demand wasn’t enough - GDP is demand determined o The level of output and employment is determined by aggregate demand in
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Unformatted text preview: the economy Determinants of Aggregate Demand-Consumers (“C”)-Businesses (“I”)-Government (“G”)-Rest of the world (“X-M”) Disposable Income (“DI”) = consumer’s income minus taxes-You can either consumer “DI” or save it-Consumption independent of DI autonomous consumption-Consumption does depend on DI induced consumption Two (2) statements-On average, consumption (C) increases as DI increases-An increase in C is less than the increase in DI...
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