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by: Lori Holte

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Week 6 Notes

Lori Holte
Virginia Tech

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These notes cover material from 9/26/16, 9/28/16, and 9/30/16.
COURSE
Macrroeconomics
PROF.
TYPE
Class Notes
PAGES
2
WORDS
CONCEPTS
Macroeconomics
KARMA
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This 2 page Class Notes was uploaded by Lori Holte on Wednesday October 5, 2016. The Class Notes belongs to at Virginia Polytechnic Institute and State University taught by in Fall 2016. Since its upload, it has received 45 views.

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Date Created: 10/05/16
Macroeconomics Unit 2 Notes 9/26/16  DAE = desired aggregate income  Yf= goal = full employment  One solution (democratic) – increase government spending  Another solution (republican) – cut taxes (take-home pay increases) GNP Problem #1: Assume: C = \$100B + .8 Y d TR 1 20% = .2 I = \$300B `-> ∴ Y d .8 Y G = \$450B Y = \$2.7 T f X = \$250B M = .1 Y d Find Y e DAE =1Y = e1,100B + .8 Y - .1 Yd d *Ye= Y Ye= \$1,100B + .7 Y d Ye= \$1,100B + .7 Y * (1d– TR) Y = \$1,100B + .7 Y * (.8 Y) e d Ye= \$1,100B + .56 Y * base equation MPC Ye- .56 Y = \$1,100B ∴ .44 Y = \$1,100B Ye= 1,100B/.44Y = \$2,500B = \$2.5 T = Y e Gap = 2.7T – 2.5T = .2 T = \$200B = Gap 9/28/16  Keynesian solution:  Multiplier effect: federal government needs to add just enough \$  MPC = marginal propensity to consume o *we are spending \$0.56 (MPC) on every dollar for American- made goods and services (products)  MPW = marginal propensity to withdraw 1 1 1  (for previous problem) M = multiplier = MPW = 1−MPC = 0.44 = 2.27 GAP 200 B  G 2 G +1 M = 4.50B + 2.27 = \$538.11B 9/30/16 0.2 = taxes 0.16 = savings  Classical Solution: Ye= 2,700B = 1,100B + n * 22,700B) 0.08 = imports 1,600B = n * (2,700B) (M) 2 0.56 = Domestic Y n2= 0.59 = MPC 2 Yd Recall: MPC 1 0.56 = 0.7 * 0.8 MPC =20.59 = 0.7 * (x) *where x = 1 – TR 2 0.59 ∴ x = 0.7 = 0.84 ∴ TR 2 1 – 0.84 = 0.16 = 16%

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