Principles of Economics II
Principles of Economics II EC 132
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This 1 page Class Notes was uploaded by Jayda Beahan Jr. on Saturday October 3, 2015. The Class Notes belongs to EC 132 at Boston College taught by Lynn Ware in Fall. Since its upload, it has received 40 views. For similar materials see /class/218054/ec-132-boston-college in Economcs at Boston College.
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Date Created: 10/03/15
EC132 Macroeconomic Principles Woods College of Advancing Studies Boston College 006 Basic Variables and Basic Graphics for Macroeconomic Principles Professor Ware Endogenous M Exogenous Variables For our purposes Endogenous Variables or Dependent Variables are determined within endo a system genous of relationships organized by a macroeconomic theory This system is typically speci ed in terms of a set of equations de ning equilibrium conditions in a macroeconomic market The main endogenous variables in macroeconomic theory EC132 Handout 200 are a Real National Income 2 b an Aggregate Price Index of Goods P both of which are determined in a theory of a Macroeconomic Goods Market c a Nominal Unit Price of Financial Assets PB which is determined in a theory of a Macroeconomic Financial Assets Market and d the Real Interest Rate 6 which is determined in a theory of a Macroeconomic Money Market Endogenous variables in turn depend on Exogenonous Variables Independent Variables and Behavioral Parameters marginal propensities regression coef cients historical constants etc determined outside exo a given system a given macroeconomic market Macroeconomic Constants Most all exogenous variables and behavioral parameters are treated as though they are constant in value for an entire accounting period a calendar year or a scal year Speci cally these variables do not change in value when the value of Real National Income the Aggregate Price Index the Nominal Unit Price of Financial Assets or the Real Interest Rate changes during an accounting period Take for example Government Spending G which is treated as an exogenous variable in the Macroeconomic Goods Market where endogenous variable real national income 2 is determined The value of G is known when 30 in 1 is known is speci ed in an application of theory 1 G Go Where G0 gt0 constant If 30 has a value of 100 then this Macroeconomic Constant is plotted as a perfectly straight horizontal line at 100 units north of origin 0 vs real national income 2 eastwest GG0 1quotm 39 Constant l l l l 0 1000 2000 3000 4000 Real National Income Behavioral Relations Other macroeconomic variables eg Planned Consumption Spending c and Liquidity Demand L3 vary in some consistent behavioral fashion with the value of Real National Income 2 or with the value of the Real Interest Rate 9 For example planned consumption spending EC132 Handout 401 will depend on real national income some form of the relationship c C31 Note that planned consumption spending is an endogenous variable in the macroeconomic goods market where endogenous variable y is determined Whew Suppose c and 2 have a linear straight line relationship such as 2 CC co c1 where c0 gt0 constant and 0ltc1 lt1 constant Then the value of planned consumption spending in 2 depends on the sum of two components a Exogenous Consumption Demand co the Intercept the value of c y in 2 when 2 0 in the linear relation plus b Endogenous Consumption Demand the product clw which has a Slope of c1 Ac A the rate at which c Y rises or falls per unit increase or decrease in Y which is greater than zero but less than one 0 lt c1 lt 1 Now suppose that c 10 0 8w This is plotted below as a straight line c Y northsouth vs 2 eastwest with an Intercept ofc0 10 and a Slope of c1 08 The scale is a bit off cc CY may Linear Relation ssAysss frCCY Interceptl o1 Slope ACA c108 0ltc1lt1 l l l l 0 1000 2000 3000 4000 Real National Income Page 11 Draft 5Sep04 Printed 15Sepo4 EC132 Handout 006