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Chapter+07+_Goods+and+Services+Market_

Chapter+07+_Goods+and+Services+Market_ - Chapter 7 Goods...

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Chapter 7 1 Goods and Services Market
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National Income Identity 2 Nominal GDP ≡ Nominal Expenditure Nominal GDP GDP Deflator Nominal Expenditure GDP Deflator Real GDP ≡ Real Expenditure
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10,000,000 8,000,000 +2,000,000 10,000,000 11,000,000 -1,000,000 10,000,000 10,000,000 0 Production Demand Δ (Inventory) + Expenditure 3 Explanation
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Goods Market Equilibrium 4 Y > AD Inventiries > 0 Y < AD Inventiries < 0 Y = AD Inventiries = 0 Production ≡ Demand + ∆(Inventories) Y ≡ AD + ∆(Inventories)
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Aggregate Demand Consumption Investment Net Exports Government Purchase C I G EX - IM AD 5 AD = C + I + G + EX − IM
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Goods Market Equilibrium 6 Assume No Foreign Trade Y = AD Y = C + I + G Y = C + I + G + (EX − IM) AD
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7 Determinants of Consumption Real Disposable Income Y d = Y TX + TR Expected Future Disposable Income Y d e = Y e TX e + TR e Real Wealth A/P Ex-Ante Real Interest Rate ρ = r Π e
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Fraction of additional disposable income people will consume ΔY d = 100 ΔC = 80 8 Marginal Propensity to Consume
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9 Saving Leftover from Consumption Y d = C + S ∆Y d = ∆C + ∆S 1 = ∆C ∆Y d + ∆S ∆Y d MPC + MPS = 1 ∆Y d = 100, ∆C = 80, ∆S = 20 0.80 + 0.20 = 1
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