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    4) Keynesian Macroeconomics I PDF

    Uploaded by

    Faiz Nasir

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    © All Rights Reserved
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    Conditions fov Equilibiun, Output Yeo] : Simple Keynesian Model » National Income ee ae 4 Be Q) ovtpur equals AD Y (Bier \| Cequitionum | Low) eee f simian Pinan GIA Ramm Eee E+ G : sel" GpPe NDP -GnPs NE & Assume fixed pric level F a Fv Pat aN vars are in real terms ie 8g. Fina ? : : 2 bets Trvesteen® et) a National product =(Naboral name) Ys Cc tS + 7 a TTL, a ean a Spina Households & Governmint | oe reer Gove Spending OW) 4 ! ¥ f+] (Nabonal Pwdut| Ye C + tG aes realizes innestinenn —l combining {4i2)+]afq: <<< << * Cot estred” t achol ve planned ) WW equitt brium using c+ e+ fe 4 & z aT == CT +G VSEt Get +g ae > St T= ltg| StT= lag [® vsing ER oe oO co} OQs+t=: . Equilibrium Conditvong ) af = L Mabanes 4 = | - fe biz spending on et og ieee C . Investment : ; may awe Tunsold > ttentional L_fivventoing TAUzECt are ig J inventories © ov not 7 Fesidemtred constmuchon — 7 : [ MputIASD> Yee tI,t Gq Consider .. ) AD> Esc ¥ 14 G (De av > AS { OG As > ao| Ype | E>yY beeen Ctl eg & CAT | ¢ > oe . | v L.-T 2 umintendid inventory accumulation I-11 y Dmmintended wventouy Shovtfaut signal firms to % outpur, Y Sees Signal Fiums +> T outpub, equitivorium } od oe >| 1:1) | ae “has Poatons teact bo Rational income, Bf sine YE C+ S47 WHY-T2e¢+8 Yoh, dl Or® © Consumption ~ income v/s ( ees c Consumenon | es & Stable Function of Xe disposable income \Yp Pe Consumption funcho wn SRN een imaplicitty der Saving -intome vc ron, Cza + bY, > beers) Yor Cts A Sl S=Ye-c¢ layo}— | lo Y, a _eMpSs * Mermmion | [sme ae 8 MEASURE ef LEcts of > Oh as Ye otter variaiees bus he one : + Mp {Any ST ment| Autonomous Component’oe AD- Yoriavie Lending ? income wnstabitiny PAMAnY deemimants, L=Itn zt) a wy r lovestment Bemanal Carve 4 i op PR Tat) pee T Le< kKogenous to income We | edecided by the govt eautpnamens exp Caloes nat depend on Yy) rrr] (5 decided by ‘ty govt 35ume Tis tump-sunn q ‘crutonomaus (oes not depanc en ¥, ) 4g A-Dounder _ Agg. Expenclitures eae Fined price ~° CA-€-) Recerlt equilibrium Ticats conditions EQuivriperum a ee em Se eee et (=E 2 CHT y BE i ee equal: ciutonomous a, ay & ‘income Cana “f b cleperels é erdog Yo Crate yy eee - Caatey = Y-T#Yo depends ow px i . - a-bT4I1q CCsasby_pt) A a i : < if Sime Xp X—T (0 Solve @y Saul baum ‘income = So > abt b seis Ye@a Teg Y i; =f \ + by bT+ 1+ Fi LG,8,7 ™PC > Stanie = autono mou $ Simomous ” ¥ = 1 expeqctane. X [expenctivunes: muthetiew a Coegp, shat ane PD Y ver Unit change -detemeneal by in AH4vMomous exp, Factors ot tor thon income * MPC Is stable > o ‘Ss Slabte * Shocksin Y smosy Prbably caustel by AT. A Th, Changes in “EQuniBewo INCOME SNELL rt ° A in autonomous Investment, AT P Din equil. income ayn | wT @ oF. I-b Al oa Owhy income change by a mulipte of sire X wate video on {he multiplion fect change in L7 “Ripple EfPect” 7) 7 TT by “oo - YT ays to] wea Dolleo ya \ a (Ho ¥ 7. b oY § ‘Vest men ciaiis Mulkipttey oN 2 oF S i oF 10 tb Y As mec t CmpsL) > x t €.9.if B=0° and 14 by “loc Fn 4 a..| 41 > bY= Stoo buy Sols b 8 4 x “600 SPoyM oy Shy, ay Le a Se UG \, ys Pele 5 = 5 ry © So ‘a 80 AY = M100 +H oy 4 4 64H Poot. s 5(¥w0) =" 565 ST hy > 2 : eessiag © why ave increase in income per dollar increase in tavestmen fis 8YsaTt ag > AY-AC = AT wm AS = AT €84+T= C+q PAS =U-bAY 9 (i-bAY = AT aS ay. it. mPS DBL I-b (-mpc “Sine T, @ ane trek, AS = AT “rise in income shoutet be Enough 40 gonsraye Saving eq to Wew Tnvestment Changes in autovomous Tnvestmenr > qraphicd Ax planatou [Fe] CHAPTER 5 The Keynesian System (I: The Role of Aggregate Demand 99 FIGURE 5-6 Effect of an Increase in Autonomous Investment on Equilibrium Income a, Aggregate Expenditures ry CLG CHheao Fy=C4ly+ Oo A= Ty 4h, + Gy a -DTg+ly+ Go % th y Income (Output) yestment, Government Span ving, and Taxes 1 fo+Go fe, ¥ Income (Output) In part a, beginning at equ ibrium A, an increase in autonomous investment, from fg tof, shifts the ‘aggregate expenditure schedule upward from Ey = C + fy + Gpto Ey = C + fy + Go. Equilibrium income increases from point A to point B, ‘The increase in income is equal to the initial ‘increase in investment (shown as an increase inthe intercept, to /, plus an income-induced increase in consumption. This inerease in consumption is shown as We move along the higher | expenditure function, £;, from point C to point B. In part 8, beginning at equilibrium A, the 1 + G schecdule hifts up from fp + Gq to fy + Gy. Equilibrium income increases from point A to point B, Yy,to Py. Changes im EQUILIBRIUM INCOME P another autonomous component of A-E.> G Preeall: FL @ Change in [T] og 2 -1 ne 5 ae oF lo 4 ) \Tax multiptiew | = Gmultiplivw ~ | @ thetaxmuliiphien if one fess in erbsolute value tra dhe Bore exp mulspver- 4y = (-byaT (=> | (%ea\ 7 6 na gt 4¥? ny “balanced - budge multiplier ” (> A in equit. output Rom a I-unit Ais BOTH T and q y Y b See ae Aa BEF 16 Sb Smalley pey-dollor impact on equill | FIGURE 5-7 erect ofan increase in Taxes on Equi Income a. Aggregate Expenditures ae CLG (C+ Oe (CHI+@, = BTy + lg +Gy GUT +p +Gy ho % ¥ Income (Output) ‘. Invesiment, Government Spending, Saving, and Taxes est ie eas y+ YY ¥ Ancome (Output) ‘An increase in taxes from To to T; shifts the aggregate expenditure schedule downward in part (C+ 1+ G)oto(C + + G); 10 equilibrium point B, because taxes are inthe intercept Equilid- ium income falls from , Ypto Y4. In part starting at equilibrium point, the saving plus ta schedule shifts up, from S ++ Ty to S + 7 Equilibrium moves from A to B. ee aE ern ey MY Fiscal STABIL( 2ATION sina a6, aT > Ay wa = Fiscal policy instruments -> stabilire ¥ > Shock in I Initia! ITU fom I, te T, Csay,dueto Une) #mo policy achon A.D. $ to €, 7 Te vestore equil. at F, Ns Bom 4%, 4 oto 4, ne SLT out need biggew emouns FIGURE 5-8 An Example of Fiscal Stabilization Policy a. Agarégate Expenditures a5 Bp=(CHly+Gd=(C+h+G) LG Fy=C4h+Gp Income (Output) joverntnent Spending, Saving, and Taxes 5 & ¥ Income (Output) Beginning at equilibrium point A in part a, a decline in autonomous investment expenditure from fg 0 f shifts the aggregate expenditure schedule downward from Ep = (C+ Ip # Go) to Ex = (C + 1 + Ga), moving to equilibrium point B, A compensating increase in discretionary go¥- ernment spending fem Go to G; shits the ageregate expenditure schedule back to equilibrium point A,where (C + 1; + i) = Ep = (C+ fg + Ga). Equilibrium income is again at Pp. In part by start= im point A, the decline in autonomous investment expenditure shifts the = C sched: 4, ftom Jp + Goto + Gy, moving to equilibrium point B, deereasing income from Yo ‘¥_,A compensating increase in discretionary government spending from Gi to Gy shifts the 1 + G Schedule upward, to. + Gy, moving back to equilibrium point A, and increasing income back to Pp. ~ ¥ Exports and Imports « C+l+G@ex-g “ athY +L 4 Gtx u-v¥ ee ee A - : Ys CatTtq+ x-u) ¥ Equitioium: ee impor, l-bav —\y— v- Y= @-G+T4 G + B= % ] > open economy +> smaller autonomous exp. multiple ing”? \ $ due to v/ assume T =O, ee G SoY,= \mports > leakage fom Domestic! Cz atb Y / civeulay Flow Consumption t Smee | °F Caomestng income Impareol =utvY DPmulkpliee 2p Ccces ‘ u>o O

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