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Unformatted text preview: Economics 201, Witte, Thursday, October 27, 2005 Quiz: TA section: Draw a 45-degree, income-expenditure diagram (KW p. 284), Aplia Chapter 11 PS II (due Tuesday, November 1, 9:PM) You should have Volume II and Volume III of Krugman & Wells. If you dont have one of them, please let me know. Now that Harriet Miers has withdrawn from being considered for the Supreme Court, Im hoping for economist and judge Richard Posner. (Bucholz pp. 36 and 199, also http://www.becker- posner-blog.com/ ) Butits just not going to happen. Keynes quotes: o In the long run, were all dead. o "When the facts change, I change my mind - what do you do, sir?" o Education: the inculcation of the incomprehensible into the indifferent by the incompetent. o Knowledge is power. Power corrupts. Study hard, be evil. (OK, not Keynes, but still good.) What was Keynes trying to do? Working during the Great Depression of the 1930s, Keynes was trying to build a model that would explain how the economy would get stuck in bad equilibria where output and employment would say well below where they had previously been. Building on that, he came up with a theory of how fiscal and monetary should be used to try to fix those bad equilibria to move them to full the full employment level of output, potential GDP. This involved the tools of the 45-degree, income-expenditure diagram, and the spending multipliers. (More precisely, Keynes was just worried about moving the economy out of the Great Depression, and the rest is modern construction upon his intellectual framework.) Short Run versus Long Run Macroeconomic Equilibrium I. Always true, even when the economy is out of equilibrium: a. Total Investment = I = Planned investment + Unplanned investment = Investment demand + change in inventories = Id + d(inventories). b. GDP = AS = C + I + G + (X-IM), Change in Inventories not equal to zero....
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