# 13-Kinv - Constructing Y* Multipliers Lecture 13-PREVIEW...

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macroS2010 Lec13-page 1 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ Constructing Y* Multipliers Lecture 13-PREVIEW Dr. Jennifer P. Wissink ©2009 Jennifer P. Wissink, all rights reserved. March 8, 2010

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macroS2010 Lec13-page 2 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ The Saving,Investment Approach to Equilibrium Y* An alternative approach that some like better. In a frugal economy we have a financial sector with HH saving going out as a leakage and firm investment coming in as an injection Recall: Aggregate output/income is the sum of consumption and investment expenditures: Y = C + I in the frugal economy. We also know that HHs allocate aggregate output/income to either saving or consumption: Y = C + S So… C + I = C + S I = S So. .. if planned/desired Investment = Saving we are at an equilibrium Y*
macroS2010 Lec13-page 3 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ The S = I Approach to Equilibrium Y*

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macroS2010 Lec13-page 4 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ The S = I Approach to Equilibrium Y*
macroS2010 Lec13-page 5 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ Comparative Statics and “Multipliers” Suppose something that we are holding FIXED in the background changes. subsistence level of consumption exogenous amount of desired investment Would throw us out of equilibrium. We’d get a new Y* How would the new Y* compare to the old Y*? A GREAT comparative static/multiplier QUESTION.

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macroS2010 Lec13-page 6 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ Comparative Statics and “Multipliers” A multiplier(K) is the ratio of the change in the equilibrium level of output (Y*), given a change in some autonomous variable. It’s: K = (ΔY*)/(Δautonomous variable) For our simple frugal economy we could have two autonomous changes and thereby the following: An investment multiplier A (subsistence) consumption multiplier
http://www.arts.cornell.edu/econ/wissink/econ102jpw/ Example: The Investment Multiplier The multiplier for autonomous investment describes the impact of an exogenous increase in planned investment on equilibrium output/income, Y*. K

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## 13-Kinv - Constructing Y* Multipliers Lecture 13-PREVIEW...

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