review - Final exam Makeup final exam Time Dec 16 7:00 pm...

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1 slide 0 Final exam Time: Dec 16, 7:00 pm Location: LH001 Chapters: 11, 13, 14, 15 (must understand chapter 10 too) What to bring: pencil, calculator, the name(s) of your group members and leader. CHAPTER 13 Aggregate Supply slide 1 Makeup final exam The DATE is Friday, December 17 The TIME is 8:00 AM The PLACE is LH 9 CHAPTER 13 Aggregate Supply slide 2 Plagiarism Copying and pasting paragraphs from other people’s articles constitutes plagiarism. You will receive a 0 for your group project. It is not illegal to use other authors’ opinions, but you cannot copy, and need to properly cite referenced sources. CHAPTER 13 Aggregate Supply slide 3 Review Next we review all the models we learned in the second half of the semester. CHAPTER 13 Aggregate Supply slide 4 The Question What causes booms and recessions? CHAPTER 13 Aggregate Supply slide 5 The Keynesian cross A simple closed economy model in which income is determined by expenditure. A model of the short-run only. The interest rate is fixed – investment becomes exogenous. Price is fixed. Producers passively respond to planned expenditure. CHAPTER 10 Aggregate Demand I
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2 slide 6 The Keynesian cross Buyers have planned expenditure , which is a function of income. Planned expenditure = planned C, I, and G (closed economy). CHAPTER 10 Aggregate Demand I slide 7 The Keynesian cross If output > planned expenditure, output and employment will go down; If output < planned expenditure, output and employment will go up. The tendency: output want to be equal to planned expenditure. When they are equal, we have reached an equilibrium. CHAPTER 10 Aggregate Demand I slide 8 CHAPTER 10 Aggregate Demand I Elements of the Keynesian Cross consumption function: for now, planned investment is exogenous: planned expenditure: equilibrium condition: govt policy variables: actual expenditure = planned expenditure slide 9 slide 10 CHAPTER 10 Aggregate Demand I Adding the interest rate Now we relax one assumption: fixed interest rate When the interest rate is not fixed, investment is no longer exogenous. Investment is determined by the real interest rate. I = I (r) slide 11 CHAPTER 10 Aggregate Demand I Y 2 1 Deriving the IS curve r I E E = C + I ( 1 )+ G = + ( 2 )+ = IS Δ Y
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3 slide 12 CHAPTER 10 Aggregate Demand I Why the IS curve is negatively sloped A fall in the interest rate motivates firms to increase investment spending, which drives up total planned spending ( E ). To restore equilibrium in the goods market, output ( a.k.a. actual expenditure, Y ) must increase. slide 13 CHAPTER 10 Aggregate Demand I Fiscal Policy and the curve An increase (decrease) in government spending shifts the IS curve to the right (left).
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review - Final exam Makeup final exam Time Dec 16 7:00 pm...

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