Ch.9 - CHAPTER 9 THE KEYNESIAN MODEL IN ACTION Fall, 2009 1...

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1 CHAPTER 9 THE KEYNESIAN MODEL IN ACTION Fall, 2009
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2 EXTENSIONS OF THE KEYNESIAN (Aggregate Expenditures) MODEL Assumptions of Chapter 8: No government No foreign trade In Chapter 9 we add 2 additional autonomous expenditures: Government purchases Net exports (X - M) We also add the “multiplier” effect In Chapter 9: AE = C + I(p) + G + (X - M)
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3 NET EXPORTS = X - M Exports depend on income levels in other countries And hence are “autonomous” with respect to domestic GDP Imports in fact may depend on domestic production and income levels, but this relationship is ignored in the text for simplicity purposes. Imports are assumed to be “autonomous” with respect to GDP Conclusion: By assumption: Net exports are autonomous
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GOVERNMENT EXPENDITURES Economic functions of government: Allocation function Distribution function Stabilization Function Government expenditures for allocation and distribution functions are assumed to be independent of current GDP We discuss the stabilization function
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Ch.9 - CHAPTER 9 THE KEYNESIAN MODEL IN ACTION Fall, 2009 1...

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