Lecture_4_complete_version

Lecture_4_complete_version - Lecture 4 Short-run Macro The...

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1 Lecture 4 Short-run Macro The Basic Keynesian Model
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2 Aggregate Expenditure (AE) AE = C + I + G + NX Remember … we are in the short-run Prices, interest rates constant. Output determined by planned AE Actual I > planned I inventories ↑ Actual I < planned I inventories ↓ But, for everyone else, we assume that actual spending = planned spending.
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3 The Consumption Function ( 29 where exogenous consumption (wealth effect) marginal propensity to consume (0<MPC<1) total income/production net taxes C C c Y T C c Y T = + - = = = = C Y-T c C
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4 Planned Aggregate Expenditure PAE = C + I p + G + NX C = 500 + 0.6(Y – T) I p = 100 G = 200, T = 250 NX = 50 PAE = 700 + 0.6Y Induced Expenditure Exogenous Expenditure
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5 SR Equilibrium Output Y = PAE Injections : I + G + X Withdrawals : S + T + M 2-sector model (I, S) Households & firms 4-sector model (I, G, X, S, T, M) Households, firms, govt & foreign sector Equilibrium : Injections = Withdrawals
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6 SR Equilibrium – 2 sectors In equilibrium: Y = PAE = C + I p I p
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Lecture_4_complete_version - Lecture 4 Short-run Macro The...

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