201C10ol - CHAPTER 10 SELF-ADJUSTMENT OR INSTABILITY-What...

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CHAPTER 10 – SELF-ADJUSTMENT OR INSTABILITY? -What forces might derail the economy from full-employment? -How will consumers and investors react to a sudden imbalance between spending and output? -What macro outcomes will these responses create? -Cartoon: Joe’s Super Sportshop -Remember the viewpoints: -Classical--the economy would self-adjust -Keynesian—gov’t intervention in needed -Leakages: saving , taxes, imports -Injections: investment, gov’t spending, exports -If injections = leakages--we have macro equilibrium -If injections > leakages--inflationary gap (T-56) -If injections < leakages--recessionary gap (T-55 & T-58) -Desired vs. Actual Investment: -if actual > desired--then unsold goods pile up on producer’s shelves as additional inventory causing layoffs/unemployment (CARTOON) -The Multiplier Process (T-60): -Multiplier: The multiple by which an initial change in aggregate spending will alter total expenditure after an infinite # of cycles; it is equal to 1 / 1-MPC -The multiplier depends on:
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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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201C10ol - CHAPTER 10 SELF-ADJUSTMENT OR INSTABILITY-What...

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