10th week of notes
10th week of notes ECON2020
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This 2 page Class Notes was uploaded by Morgan Genelin on Thursday April 21, 2016. The Class Notes belongs to ECON2020 at University of Colorado taught by Murat Iyugan in Winter 2016. Since its upload, it has received 29 views. For similar materials see Principles of Macroeconomics in Economcs at University of Colorado.
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Date Created: 04/21/16
March 29 31, 2016 Income and Expenditure: 1. Consumption Function: c = a + mpc * (y – t) a. Variables: i. C= consumption of human household 1. Short run simple example ii. Mpc = marginal propensity to consume 1. Slope assume it is fixed 2. Smaller for the wealthier people iii. A= intercept 1. Part of consumption we cannot explain iv. Y – t = disposable income b. Mpc and mps i. Mps: 1 – mpc ii. mpc= change∈consumerspending change∈disposableincome c. The spending multiplier 1 i. 1−mpc : used for certain questions about growth. 2. Investments a. Planned investment spending: I that business plan to undertake in a given period of time (denoted Ip) i. Depends negatively on interest rate (r) 1. Opportunity cost of investment ii. Depends positively on expected future real GDP 1. Incomes (y) if they go up so does investment. b. Unplanned investment spending: denoted Iup i. Inventory changes (excess or deficit) c. Total Investment = Ip + Iu 3. The Income expenditure model a. Simplify the national income accounts even more i. Y = c + I (instead of y = c + I + g + nx) ii. Consumption function: 1. C = a + mpc * (yt) 2. AEp (aggregate planned expenditure equation) a. = C + Ip b. So put it all together i. AEp = a + mpc*(y – t)+ Ip AEp = Y c. GRAPH!! Slope = 1 AEp = a + mpc*(yt) + Ip A + Ip Slope = mpc Y = AEp d. Some notes about this graph: i. Unplanned investment is the gap between Y =AEp and our line ii. Total output equals what people planned for at Y=AEp iii. BOOM: means that the economy is doing good 1. We are low on inventories iv. BUST: means the economy is doing badly. 1. We have too much inventory e. BRINGING BACK IN THE GOVERNMENT i. If we bring it back to our national income accounts equation 1. Y = C + I + G ii. Where does it go on the graph? 1. Add it to the a + Ip (it adds to the intercept)
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