Principles of Macroeconomics – Keynesian Model (Lecture 8.2)

Principles of Macroeconomics – Keynesian Model (Lecture 8.2)

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Principles of Macroeconomics – Keynesian Model (Lecture 8.2) The multiplier is when an autonomous change in aggregate planned expenditure has a greater final impact on equilibrium real GDP. The Consumption Function Aggregate Planned Expenditure Equilibrium real GDP
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An increase in planned investment The Multiplier An increase in investment. .. o Means that aggregate expenditure and real GDP increase. o Disposable income increases, which increases consumption expenditure. o So aggregate expenditure increases again; real GDP, disposable income, and consumption expenditure increase further. o The initial increase in investment brings an even bigger increase in aggregate expenditure because it induces an increase in consumption expenditure. o The magnitude of the increase in aggregate expenditure that results from an increase in autonomous expenditure is determined by the multiplier.
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Unformatted text preview: • The slope of the AE curve determines the magnitude of the multiplier. o The steeper the AE curve, the greater is the increase in induced expenditure that results from a given increase in real GDP. o Income taxes and imports both make the AE curve less steep and the multiplier smaller than it otherwise would be. Aggregate Planned Expenditure and aggregate Demand An increase in planned investment Aggregate expenditure and aggregate demand • The aggregate planned expenditure curve is the relationship between aggregate planned expenditure and real GDP, with all other influences on aggregate planned expenditure remaining the same. • The aggregate demand curve is the relationship between the quantity of real GDP demanded and the price level, with all other influences on aggregate demand remaining the same....
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This note was uploaded on 09/27/2011 for the course FINANCE 1001 taught by Professor Profassorted during the Three '11 term at University of Adelaide.

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Principles of Macroeconomics – Keynesian Model (Lecture 8.2)

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