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econ ch3 - The Short Run part II The goods market(Ch 3 Prof...

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The Short Run: part II The goods market ( Ch. 3) Prof. Davide Debortoli UCSD Econ 110A – Spring 2011 Outline ! The demand for goods in the real world ! The components of GDP ! Building a model for the Goods market ! The equilibrium in the Goods market ! Derivations ! Graphical representation ! Some experiments ! A change in consumer confidence ! Change in gov’t expenditure ! The saving paradox
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Who buys the goods produced ? Billions of US $ % of GDP GDP (Y) 14,526 100.0 Consumption (C) 10,245 70.0 Investment (I) 1,728 11.9 Non Residential 1390 9.6 Residential 338 2.3 Government Spending (G) 3,003 21.0 Net Exports - 516 -3.5 Exports (X) 1,840 12.7 Imports (IM) -2,356 -16.2 Inventory investment 70 0.5 Foreign sector Domestic sector Putting it all together Z " C + I + G + X # IM Symbol Meaning Z Aggregate Demand C Private Consumption I Fixed Investment G Government Expenditure X Exports IM Imports
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Economic models: Main features ! Reality is too complex …w e need to simplify. 1. Make assumptions (simplifications, to some extent irrealistic) 2.
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