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Unformatted text preview: o Consumption function = C+I So C = 30 + 0.8 (Y D ) o Thus C = 30 + 0.8*0.9 Y o In the prescene of taxes, the marginal propensity to consumer out of national income is less than the marginal propensity to consumer out of disposable income. o PAGE 553!!-Changes in Equiliburm National Income o z = MP to Spend out of national income o Imports and taxes reduces MP to spend out of national income and reduces value of simple multiplier o With gov + trade 1 / (1-[MPC(1-t)-m) o Increases in national income increase GDP less and less. o Stabilization polcy: Any policy designed to reduce the conomy cuclical fluctation and thereby stablizie national income Gov purchases: Money spent times multiplier Change in tax rate • Increases idposbale income which rotates AE up. • Opposite is also true o Demand detmerined output Closed economy: 1/1-MPC Open: MPC(1-t) -m...
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This note was uploaded on 04/28/2011 for the course ECON 209 taught by Professor Mattieuprovencher during the Spring '09 term at McGill.
- Spring '09