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by: Amelia Reynolds


Marketplace > Georgia State University > Economcs > ECON 2105 > PRINCIPLES OF MACROECONOMICS
Amelia Reynolds
GPA 3.73


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Class Notes
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This 5 page Class Notes was uploaded by Amelia Reynolds on Monday September 21, 2015. The Class Notes belongs to ECON 2105 at Georgia State University taught by Staff in Fall. Since its upload, it has received 28 views. For similar materials see /class/209824/econ-2105-georgia-state-university in Economcs at Georgia State University.




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Date Created: 09/21/15
THE KEYN39ESIAN CROSS AND THE M39U39LITPLIER PART ONE THE RELATIONSHIP BETWEEN CONSUMPTION AND INCOME hunzuntal szs Huw are the gaphs sImIlzr7 Huw are the gaphs dIffErenU Imum Hun M NH huhummwm I ClquotH39II39 U mnuuluq W HIquot HI SImIlanty In shunta39m and Lung Term as Ymmeases c Increases alsu AL amatruewnummlevel I znmmease mmeume est leadstu znmmease m euhsumpueh uf less than 1 In the shun run numba39s efpeuple WIII menu uf 39a lun ufanmeresse mmeume z znmmease mmeume est leadstu znmmease m euhsumpueh ufialmust 1 In the lungrun Margnal Prupenslty cu Cunsume mpe MFC C27 CIKr K7 hangem CChznge m Y Whats CI and C2 are euhsumpuuhlevels befure and a er snmeume ehange Y and Y2 are mspusahle meume levels and the change In Y 5 usually relatively small Margnal Prupensltytu Save mps MFS SZrSlYZVYIZChzngeIn SChangem Y Where S1 and S are saving levels before and after an income change Y1 and Y2 are disposable income levels and the change in Y is usually relatively small Note MPCMPS 1 Use the information in the table below to calculate the marginal propensity to consume MPC and the marginal propensity to save MPS Disposable Income AY Consumption AC Saving AS 100 90 10 110 gt10 99 gt9 11 gt1 120 gt10 108 gt9 12 gt1 130 gt10 117 gt9 13 gt1 MPC 9990llOlOOO9O MIPSlllOllO100010 At a macro level 0ltMPCltl With changes in income spread over many people some will want to spend part and save part At a person levelMPC could equal 0 save all additional income MPC could also equal 1 Spend all additional income in current period Recall the general formula for a straight line y mx b Where m slope and b yintercept m AyAX GRAPHING THE CONSUMPTION FUNCTION C A mpc YD Cbar cYD Where A autonomous consumption determined independently of income 0 mpc marginal propensity to consume YD disposable income C is aggregate consumer spending A is autonomous consumption independent of income MPC is the marginal propensity to consume YD is disposable income Later we will approximate the consumption function with C A mpc Y Mme unAurCrbzr Evenifmtume LpEDpleneedtuspendfurnecessmes1e funishelter Feuple Thu 9 m by a achun quhe merease m mcume PLOT OFTH CONSUMPTION FUNCTION Winnw 1 Wealth Anmmease decrease rr wealthleadstu anrrrerease decrease rrreerrsumpaer 2 Price Level Anmmease decrease m pncelevelsleads m ademease rrrereaserr Eunsumphun 1 Interest Rates Anmmease decrease m mtereeratesleadstu adecreasem cunsumpnnn upperman Bust ufhuldmg une duller m eash fur une year Asmterestrates nse whens the Impact Dn a bunuwmg hsavmg and e cunsumptmnquot m r Vr V n Thu 3m MW h r Interearates au nther Lhmgs equal m deuease Ennsumpuun and bumwmg and rrrerease saxmg 4 ExpectanunsufFutureVanables r e Anmcreasem expected futuremcume cunldleadtu anmcreasem Bunsumphun AN INCREASE DECREASE IN AUTONOMOUS CONSUMPTION A SHIFTS THE CONSUMPTION FUNCTION INVESTMENT mqu IIIIeI IIIII How 4 cannot afford w borrow as much HIgn mtaestmtes gt Lend out money In Inenease pro ts Low Interest rates a ilncrease pro ts by nsIng extra Cash w buy capxtal rather unnn IendIng the money out I I I WI u S I The annual remm from the machIne Is 7000 or 7 71071 t P 10000 7 I Tn m Accountmg BuyIng U S bonds Is NOT part ofInveernenL In Nahonal Income AccounLIng 73 y I y I III i03000 The Company Is more 1Ike1y to buy maenIne part of Investment INVESTMENT FUNCTION 1 Iplanned Iunplanned T olal Investment Planned Inv estmenl Unplanned Inv esLment In Equilibrium After Producers Have Adjusted to Sales and thus no longer have incentives to change production levels Iunplanned 0 Thus in equilibrium I THREE FACTORS INFLUENCING INVESTMENT MUCH MORE IMPORTANT THAN INCOME l 2 3 Available Production Capacity With Existing Capital or idle capacity EFFECT OF ADDING INVESTMENT TO CONSUMPTIONINCOME DIAGRAM


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