201C9ol - CHAPTER 9 - AGGREGATE DEMAND -What are the...

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CHAPTER 9 - AGGREGATE DEMAND -What are the components of aggregate demand (AD)? -What determines the level of spending for each component? -Will there ever be enough demand to maintain full employment? -If in a recessionary trap/gap: Keynes wanted gov’t intervention to boost spending and get things back on track -Keynes said deficient (lack of) AD was likely to cause high unemployment; unemployment results from inadequate demand for goods in the economy -The Four Components of AD (spending/AE): C = Consumption I = Investment G = Government spending X-M = Net exports (also X-IM) -Keynes felt that disposable income was the key -Disposable Income (YD) = Consumption (C) + Saving (S) (Note: these are the only 2 things you can do--C or S) -Average Propensity to Consume (APC)--total consumption in a given period / total disposable income; C/YD -Example: if your income is $20,000 and you consume $14,000 your APC would be .7; (14,000/20,000) -Average Propensity to Save (APS) = 1 - APC; .3 in above -Marginal Propensity to Consume (MPC)--The fraction of each additional/extra/marginal dollar of disposable income spent
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This note was uploaded on 02/22/2011 for the course ECON 201 taught by Professor Hickman during the Spring '11 term at Frederick Community College.

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201C9ol - CHAPTER 9 - AGGREGATE DEMAND -What are the...

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