ECO2004S Summary that will change everything! (1).pdf

Differences due to rounding o of people employed

Info icon This preview shows pages 2–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Differences due to rounding. o of people employed Working-age population x 100
Image of page 2

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Okun’s Law If output is high unemployment will decrease Slope of the line is -0.4 so a 1% increase in the growth rate decreases unemployment rate by 0.4% Horizontal intercept is 3% so a growth rate of 3% will keep unemployment rate constant (not zero because of natural rate of unemployment) Phillips Curve If unemployment is low, inflation is high Now defined as the relation between the change in the rate of inflation and the unemployment rate From here we can examine if it's possible to balance between these important economic variables CHAPETR 3: THE GOODS MARKET Simplified assumptions One market in which all the firms produce the same good Fixed price and unlimited supply Closed economy: X=IM=0 Total demand for goods is: Z=C+I+G+(X-M) (X-M)=0 (closed economy) Z = C + I + G C= Consumption I = Investments G= government spending
Image of page 3
Consumption C Consumers consumptio Disposable income is th - More money after tax, the - More money after tax the m MPC is the slop 0<C 1 <1 Key aspects: 1. Co 2. Co 3. Co di Investment (I) Determined outside of - If productio Exogenous = outside th Endogenous = inside th Ī = exogenous investm Government spending (G) Government spending G & T are exogenous C = Y d = Y-T C= consumption Y d = disposable incom on he main determinant more you spend more you spend pe of the function onsumption increases as disposable incom onsumption is positive at zero income - Autonomous income - Non-income derivatives - Dissaving onsumption increases less than the increas isposable income (because MPC < 1) - Save some income the model (exogenous) on changes investment will not respond he model he model ment and taxation = fiscal policy me C = c 0 + c 1 Y D = c C 0 = autonomous consumpti C 1 = Marginal propensity to Y d = disposable income me increases se in c 0 + c 1 (Y-T) ion (C o > 0 = dissaving) o consume (MPC)
Image of page 4

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Demand for goods (Z) Total demand for good Therefore demand d Equilibrium in the goods Ma Production/output (Y) Y=Z Demand depends on in Income depends on pro The eqn is known as th Y = Determining Equilibrium ou SR demand determined Z < Y then output will d Z > Y then output will i ds: Z = C + I + G Z = c 0 + c 1 (Y-T) + Ī + G depends on: Y, I, and G arket (IS relationship) ) must be equal to demand (Z) ncome oduction he IS relationship = Z = c 0 + c 1 (Y-T) + Ī + G utput d output decrease increase Equilibrium co onditions
Image of page 5
1. Autonomous spendin (independent of output 2. Multiplier: - 1 > MPC (C 1 - This has imp seeing as th greater than - This means increase in o consumptio Investment = Savings Alternative way of thin Savings = Private + Pub Investment = Savings = IS relation: what firms consumers want to sav ng is the part of demand that does not depe t) ) > 0 plications for the multiplier which is 1/ (1- hough MPC > 0 and < 1 then Multiplier ends n 1 (C 1 can never be zero) that an increase in (C 0 – C 1 T + I + G) will re output greater than the initial increase in on nking about the goods market blic
Image of page 6

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern