LONG RUN

Disposable Income

Function of consumption

Saving

Mirrors/compliments consumption

Transfer Payments

Fixed and determined by the govt

Planned Investment (Autonomous I)

Fixed and determined and not affected by income

Unplanned Investment

Behavioral in nature (Positively affected by income, negatively affected by interest rates)

Government spending

autonomous and fixed determined by fiscal policy

Taxes

main tool of fiscal policy budget

General Appropriations Act of (YEAR)

Approved budget in PH

Exports

Assumed to be fixed and autonomous

Imports

outflows assumed to be affected by level of income

Autonomous income level

not affected by income

Marginal propensity to import

Behaviorally affected by income level

Gini coefficient

statistical measure of inequality

Lorenz Curve

representation of income and wealth

Force of compounding

the tendency to increase overtime

Capital and labor

2 factors of production relating to aggregate output

state of technology

determines level of output given capital and labor

Constant returns to scale in aggregate production function

increase in output per worker comes from increase in capital per worker or improve state of technology

Capital Accumulation or Improvement in technological progress

growth can come from

Capital accumulation

cannot sustain growth of output per person

Saving rate

determines the level of output per person

Technological progress

ultimate determinant of sustained output growth

level of output

depends on amount of capital

capital accumulation

dependent on level of output

level of output

dependent on savings and investment

levels of output dependent on amount of capital and capital accumulation dependent on level of output

2 relations that determine evolution of output in long run

Physical and human capital

output can depend on

Models of endogenous growth

models that generate growth even without technological progress