This preview shows pages 1–4. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: C = 100 + 0.75 Y I = 25 C + I = 125 + .75 Y Equilibrium: C + I = Y 125 + .75 Y = Y 125 = .25 Y 125 / .25 = Y 500 = Y 29 AE Y C + I 500 125 slope = .75 30 Equilibrium output might not be full employment output. AE Y C + I Y* Y F 31 A rise in consumption or investment raises equilibrium output. AE Y C + I 2 Y 2 C + I 1 Y 1 32 AE Y C + I 2 Y 2 C + I 1 Y 1 Output rises MORE than the increase in consumption or investment. 36 Marginal Propensity to Consume MPC = the portion of an extra dollar of income that consumers spend. Example: C = 100 + .75 Y MPC = .75 C = 100 + .9 Y MPC = .9 37 The Multiplier The amount that Y rises for each $1 rise in C or I. 45 The Multiplier 1 + MPC * 1 + MPC*(MPC) + MPC*(MPC 2 )+ = 1 + MPC + MPC 2 + MPC 3 + = t=0,. .. MPC t = 1/(1MPC)...
View Full
Document
 Fall '08
 MarthOlney
 Economics, Interest Rates

Click to edit the document details