ectureAssignment20

ectureAssignment20 - ECONOMICS 100 Lecture Assignment...

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ECONOMICS 100 Lecture Assignment # 20 (Introduction to the Simple Theory of Income Determination Source: LR11, Chapter 21, to end; LR10, Chapter 22, to end. 1. The Simplest Model Consider an economy consisting of households (which either consume or save) and firms (which produce either consumer goods or investment goods). Output can be expanded, at constant costs (i.e., no price increases) until full employment (Y F ) is reached. Put another way, this economy experiences zero inflation so long as there are idle resources. In other words, the AS schedule is perfectly elastic. (See note in previous assignment re Aggregate Supply). For the purposes of the questions, assume zero inflation, so that there is no difference between "nominal" and "real" values. The demand of households for consumption goods can be summarized by an aggregate Consumption Function , as follows: C = 10 + .8Y ($Billion) where C = Consumption and Y = Income (production, output). As taxes are zero, there is no difference between total income and disposable
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This note was uploaded on 08/24/2010 for the course ECO 100 taught by Professor Indart during the Fall '08 term at University of Toronto.

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ectureAssignment20 - ECONOMICS 100 Lecture Assignment...

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