ECO 16 23 FEB - Lecture 16 ECO 100Y5Y 23 February 2009 A Cohen PARKIN BADE ECONOMICS February 2009 PARKIN BADE ECONOMICS Chapter 23 Expenditure

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 16 23 February 2009 ECO 100Y5Y A. Cohen 1 E C O N O M I C S PARKIN BADE Lecture 16 23 February 2009 E C O N O M I C S PARKIN BADE Chapter 23 Expenditure Multipliers From AD perspective, what determines level GDP (Y)? Say’s Law — supply creates its own demand Keynes identified fallacy of Say’s Law Planned Expenditures = or Actual Output Aggregate planned expenditure ( AE ) is key concept to determine level GDP AE = planned C + I + G + X M AE model assumes prices fixed We will relax that assumption in moving from AE model to AS /AD model
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 16 23 February 2009 ECO 100Y5Y A. Cohen 2 Expenditure Plans and GDP: Consumption Consumption function — relation between planned C and disposable income ( YD ), ceteris paribus disposable income — YD = income + transfers taxes Net taxes NT = (taxes transfers) YD = Y NT Associated Saving function — C + S = YD S = YD C continued Δ YD = $200b 200 400 600 800 1000 0 A B C D E F 200 400 600 800 1000 $ 150b = Δ C MPC = 0.75 C = 150 + .75 YD 45 o line Figure 23.2a Marginal Propensities to Consume and Save: Consumption Function YD C Marginal propensity to consume ( MPC ) = Δ C / Δ YD = slope of consumption function continued
Background image of page 2
Lecture 16 23 February 2009 ECO 100Y5Y A. Cohen 3 0 -200 200 200 600 800 1000 S = 150 + .25 YD A B C D E F 400 MPS = 0.25 Δ YD = $200b Δ S = $50b S YD Figure 23.2b Marginal Propensities to Consume and Save: Saving Function Marginal propensity to save ( MPS ) = Δ S / Δ YD = slope of saving function continued C + S = YD Δ C + Δ S = Δ YD Δ C / Δ YD + Δ S / Δ YD = Δ YD / Δ YD MPC + MPS = 1 continued
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 16 23 February 2009 ECO 100Y5Y A. Cohen 4
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/25/2010 for the course ECONOMICS ECO100Y taught by Professor Furlong during the Fall '09 term at University of Toronto- Toronto.

Page1 / 11

ECO 16 23 FEB - Lecture 16 ECO 100Y5Y 23 February 2009 A Cohen PARKIN BADE ECONOMICS February 2009 PARKIN BADE ECONOMICS Chapter 23 Expenditure

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online