EQUATIONS M2

# EQUATIONS M2 - 1 rGDP = Y[spending = income 2 rGDP = C I[C...

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1. rGDP = Y [spending = income] 2. rGDP = C + I [C + I = AE] w/ gov’t, rGDP = C + I +G rGDP = A + MPC X (Y – T + TR) + I + G 3. C = A + MPC x Yd Yd = disposable income w/ gov’t, Yd = Y – T + TR (national income – taxes + transfers) w/only t, Yd=(1-t)Y w/t and T, Yd=[(1-t)Y-T+TR] total gov’t revenue w t and T gov’t revenue tY+T, net tax tY + T - TR C = A + MPC x (Y – T + TR) 4. I= Ip + Iu 5. AEp = C + Ip [planned aggregate expenditure] 6. rGDP = AEp [equil condition, actual expenditure = planned] rGDP = C + Ip + Iu rGDP = AEp + Iu AEp = A + MPC + rGDP + Ip AEp = C + Ip rGDP* = A + Ip/1 – MPC o w/ govt/taxes: rGDP* = 1/1 – MPC(A + Ip + G) + MPC/1 – MPC(TR – T) T= lump-sum taxes (T-TR)= gov’t net lump sum taxes t= income taxes o adding t, rGDP* = 1/1-(1-t)MPC(A + Ip + G) + MPC/1-(1-t)MPC(T-TR) switched T/TR net lump sum taxes are what we multiply by [neg] tax multiplier*** o in terms of changes ∆rGDP* = 1/1 – MPC(∆A + ∆Ip + ∆G) + MPC/1 – MPC(∆TR - ∆T) “∆ in rGDP is equal to sum of changes in the autonomous variables times

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