EC2013S11_L5

EC2013S11_L5 - ECON2013 Principles of Macro Lecture 5...

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ECON2013 – Principles of Macro Lecture 5 Aggregate Demand
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Today we talk about… 1. Aggregate Demand, GDP and National Income 2. Consumption Function
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Definition of GDP • GDP is the sum of the money values of all final goods and services produced within the year, inside the geographic boundaries of the U.S., and sold in organized markets.
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Aggregate Demand If goods and services are produced and sold on the one hand, there must be someone willing to buy on the other side! Wanting something is not enough though. We need also the money! This is what define the Aggregate Demand
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GDP and Aggregate Demand
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Components of AD AD = C + I + G = Consumption + Investment + Government Expenditure Three main components from the three main characters
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• Households: They consume, but also work for the firms. They include also entrepreneurs who own capital. • Firms : hire workers and use entrepreneurs’ capital to produce GDP. Supply goods. • Government: Levies taxes and buy goods and services from firms. Three Main Characters
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Open Economy AD = C + I + G + (X – IM) = Consumption + Investment + Government Expenditure + (Exports – Imports) Exports - Imports = Net Exports
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Aggregate Demand If goods and services are produced and sold on the one hand, there must be someone willing to buy on the other side! Wanting something is not enough though. We need also the money! This is what define the Aggregate Demand
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• National income – Total income of all individuals in economy: wages, interest, rents, profits – Before taxes / deductions • National income = Domestic Product
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EC2013S11_L5 - ECON2013 Principles of Macro Lecture 5...

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