Lecture 19 Notes

# Lecture 19 Notes - ECN 211 Macroeconomic Principles...

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10/23/09 1 ECN 211 Macroeconomic Principles L13:Equilibrium in the Keynesian Model.

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10/23/09 2 Aggregate Expenditures Remember AE = C + I + G + NX Remember AE varies as income varies Note: AE are planned expenditures. – I.e. what we plan to spend at different levels of income.
10/23/09 3 Aggregating expenditures. 30 Y Aggregate expenditures C 80 150 C+I+G 200 C + I + G + NX=AE

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10/23/09 4 Equilibrium • Equilibrium occurs in the fixed price Keynesian model when aggregate expenditures equal the level of output/income Y=AE
10/23/09 5 Real GDP (Y) Aggregate expenditures 45 o Line (Y=AE) \$100 \$100 \$200 \$200 \$300 \$300 Therefore have to be on the 45 degree line in equilibrium

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10/23/09 6 Aggregate Expenditures Example • C = 30 + 0.7Y • I = 50 • G = 70 • X = 100 • M = 50 + 0.1Y
10/23/09 7 Equilibrium AE = 30 + 0.7Y + 50 + 70 + 100 - 50 - 0.1Y AE = 200 + 0.6Y Equilibrium occurs when Thus 200 + 0.6Y = Y 200 = 0.4Y Y* = 500

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In Equilibrium @ Y= 500 • C = 30 + 0.7( 500 )=\$380 • I = 50 • G = 70 • X = 100 • M = 50 + 0.1( 500 )= \$100 • Extra • NX = 0, APC = 0.76, APS = 0.24, IO = 20% 10/23/09 8
10/23/09 9 Real GDP (Y) 45 o Line (Y=AE) \$200 \$200 \$400 \$440 \$400 AE Aggregate expenditures

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Lecture 19 Notes - ECN 211 Macroeconomic Principles...

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