html5-img
1 / 14

Income and Expenditures Equilibrium

Income and Expenditures Equilibrium. Equilibrium Real GDP: mpc = .7, mpi = .1. Movement to Equilibrium. 45 o line: AE = Y. 700. Total Expenditure. 600. Increase Output, increase Employment. 500. Reduce Output, Reduce Employment. Aggregate planned expenditure. 400. 0. 300. 400.

abbot-casey
Télécharger la présentation

Income and Expenditures Equilibrium

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Income and Expenditures Equilibrium

  2. Equilibrium Real GDP: mpc = .7, mpi = .1

  3. Movement to Equilibrium 45o line: AE = Y 700 Total Expenditure 600 Increase Output, increase Employment 500 Reduce Output, Reduce Employment Aggregate planned expenditure 400 0 300 400 500 600 700 Real GDP (Output)

  4. Leakages and Injections

  5. Spending Multiplier • The spending multiplier measures the change in equilibrium income (real GDP) produced by change in autonomous expenditures: ΔY/ΔI = ΔY/ΔG = ΔY/ΔX • By how many dollars does real GDP change for every dollar change in autonomous expenditures?

  6. Computing the Spending Multiplier:Marginal propensity to save = mps = .3Marginal propensity to import = mpi = .1 If MPS = 0.30 and MPI is 0.10, then MPS + MPI = 0.40 = 4/10. 1/0.40 = 1/(4/10) = 10/4 = 2.5 The multiplier is 2.5. NOTE: The spending multiplier would be larger in a closed economy because MPI would be zero.

  7. Multiplier at Work

  8. Gaps: Recessionary Gap, GDP Gap

  9. GDP Gap, Recessionary Gap • GDP gap = potential real GDP – actual real GDP • How much does real GDP have to increase to generate full employment? • Recessionary gap • How much additional spending is needed to achieve potential GDP (to create full employment)?

  10. Sequence of Expenditures

  11. Sequence of Expenditures

  12. From Aggregate ExpendituretoAggregate Demand

  13. The Fixed-Price, Keynesian AS-AD Model

  14. The Paradox of Thrift

More Related