Lecture4 - Lecture 4 A Short Run Macroeconomics Model In...

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ECON1002 Introductory Macroeconomics 1 Lecture 4 A Short Run Macroeconomics Model In this lecture, we will study about John Maynard Keynes, the concept of aggregate expenditure, Keynes’s view of consumption, short run macroeconomic equilibrium, the Keynesian cross 45 0 diagram and the four sector model, the goods market multiplier 4 sector model
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ECON1002 Introductory Macroeconomics 2 We expect you to understand: Do I appreciate the importance of John Maynard Keynes to Macroeconomics? What is meant by planned aggregate expenditure? What is the consumption function? Do I know how to derive an equation for PAE? What are the conditions defining a SR equilibrium? How does the economy adjust in the SR if it is not in SR equilibrium? Can I illustrate equilibrium on a diagram featuring withdrawals and injections? The role of multiplier Two-sector vs Four-sector model Basic Keynesian Model
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ECON1002 Introductory Macroeconomics 3 Who is Keynes? 1883 – 1946 Cambridge University A central figure in the Bloomsbury group “Economic Consequences of the Peace” (1919) “The General Theory of Employment, Interest and Money” (1936) (intellectually) responsible for the Bretton Woods system and the formation of the IMF. A founder of macroeconomics
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ECON1002 Introductory Macroeconomics 4 Planned Aggregate Expenditure (PAE) C I p G NX Assume: Planned = Realised If firms sell less than they expect, I > I p , inventories If firms sell more than they expect, I < I p , inventories Aggregate Expenditure
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ECON1002 Introductory Macroeconomics 5 Keynesian Consumption Theory The fundamental psychological law, upon  which we are entitled to depend with great  confidence both a priori from knowledge of  human nature and from the detailed facts 
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Lecture4 - Lecture 4 A Short Run Macroeconomics Model In...

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