Lecture 11 Goods Market Equilibrium

Lecture 11 Goods Market Equilibrium - ECO 320L, Fall 2010,...

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ECO 320L, Fall 2010, Professor Beatrix Paal updated 9/20/2010 1:31 PM Lecture 11: Goods Market Equilibrium 1 Lecture 11 Goods Market Equilibrium Last time investment ( Chapter 4.2 ) Today worked example: the consumption/saving choice ( Example 4.1 ) summary of the goods market goods market equilibrium ( Chapter 4.3 ) TFP shocks and the goods market ( Chapter 4.3 ) Next time fiscal policy ( Chapter 4.1 and 4.A ) Worked Example: The consumption/saving choice Example 4.1 with utility function ? °, ° ± = 4 ln ° + 6 ln ° ± , the optimal solution was Note that the marginal propensity to consume is ²³´ = µ° µ¶ · = 0.4 ¸ from this, we can derive private saving as – clearly, private saving is an increasing function of current after-tax income We could define the marginal propensity to save as MPS = 1 – MPC In this example, MPS = 0.6 a decreasing function of initial assets Note that with more initial assets, households will lend more, but save less from current income.
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Lecture 11 Goods Market Equilibrium - ECO 320L, Fall 2010,...

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