Developing a Macro Model -- Introduction

Developing a Macro Model -- Introduction - Econ 1021 Fall...

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    Developing a Model of the  Macroeconomy – Introduction  Outline 1. Introduction & Motivation 2. The Macroeconomy’s Circular Flow a) hh and firms b) Incorporate govt and foreign sectors 3. Further consideration of the equilibrium conditions a) Savings & investment b) Trade balances & link to domestic economy 4. A rough ‘road map’ Econ 1021 Fall 2009 Reading:   pp. 115-118, 203-212, 250-252  from Macroeconomics in Context
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    Output ( Y ) Income ( Y ) Spending (Aggregate Demand or AD ) Spending stimulates firms to produce Production generates incomes Incomes give actors the ability to spend The Macroeconomy’s “Circular  Flow” Equilibrium a set of “prices” in the macroeconomy such that Y = output = income = expenditures Y = AD Does Y = Y* in equilibrium???
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    Expenditures – the Aggregate Demand  for goods & services Firms’ plans may not be realized Intended investment ( II) – the quantity of  investment that firms  plan  to make over the  upcoming calendar period. “investment” = residential investment + nonresidential investment + inventory investment Intended investment (II) is one component of  aggregate demand AD = C + II + G + NX
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    Production generates income to households Saving ( S pvt ) leakage
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