gs_-27_--_Aggregate_income_equilibrium

Gs-27_Aggregate_ - ANNOUNCEMENTS#1 Test will be held at from 7:30 am to 9:00 am SCHEDULE OF EXAMS o TEST#1 and TEST#2 DONE oTEST#3(Friday change of

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1 ANNOUNCEMENTS (#1): ± Test will be held at from 7:30 am to 9:00 am. ± SCHEDULE OF EXAMS: o TEST #1 – and TEST #2 -- DONE! o TEST #3 – March 12, 2010 (Friday) – change of date o FINAL EXAM – To be announced – [FINAL EXAM WEEK] o Coverage is up to Chapter 16 of textbook . 3/5/2010 Econ 11 -- Lecture #27 2 REMINDER: Do the National Income and Balance of Payments EXERCISES UPLOADED IN UVLE. ± National Income Exercise ± Balance of Payments Exercise 3/5/2010 Econ 11 -- Lecture #27 3 Lecture 27: AGGREGATE INCOME AND OUTPUT EQUILIBRIUM ± Second view: AGGREGATE EXPENDITURE (C+I+G+[X-M]) AND AGGREGATE OUTPUT (C+S+T) ± INCOME AND OUTPUT MULTIPLIER – “LEAKAGES” AND THEIR EFFECTS
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2 3/5/2010 Econ 11 -- Lecture #27 4 INTERACTION OF AGGREGATE DEMAND AND AGGREGATE SUPPLY 3/5/2010 Econ 11 -- Lecture #27 5 RELATIONS OF MAJOR NATIONAL INCOME CONCEPTS We know from accounting identities, GNE=GDP. We know from the first view that total expenditure (aggregate demand) is equal to total output (aggregate supply). We use some of the national income definitions in the analysis. ± GNE, or Aggregate demand, is broken down as: GNE = C + I + G + (X-M) Where: C = Consumption expenditure I = Investment expenditure G = Government expenditure (X-M) = Net Value of Exports over Imports
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3 Use some of the national income definitions in the analysis. ± GDP, or Aggregate Supply, is broken down as: GDP = C + S + T Where: C = Consumption expenditure S = Saving T = Tax revenue 3/5/2010 Econ 11 -- Lecture #27 8 At Income/ Output Equilibrium ± Aggregate demand = Aggregate Supply Or: E = Y Or: C + I + G + (X-M) = C + S +T. 3/5/2010 Econ 11 -- Lecture #27 9 At Income/ Output Equilibrium ± Deduct T from both sides. Or: C + I + (G-T) + (X-M) = C + S. ± This result can be simplified still: I + (G-T) + (X-M) = S. o If G-T and X-M were both zero, then I = S.
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4 10 Summary of our results: ± Aggregate demand and aggregate supply are in equilibrium when ± C+I+(G-T)+(X-M)=C+S. ± The term, (G-T), is government expenditure minus taxes. It is the fiscal balance or the government’s budget . ± The term, (X-M), is the net demand of foreigners for the country’s goods. It is often called the trade balance . ± Note: If (G-T) and (X-M) are both zero, the equilibrium condition is simply: ± C+I=C+S.
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This note was uploaded on 04/18/2010 for the course SE 67256 taught by Professor Dr.gerardosicat during the Spring '10 term at University of the Philippines Diliman.

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Gs-27_Aggregate_ - ANNOUNCEMENTS#1 Test will be held at from 7:30 am to 9:00 am SCHEDULE OF EXAMS o TEST#1 and TEST#2 DONE oTEST#3(Friday change of

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