econ 1 topic 11

output and spending

Aggregate demand

total demand for an ouput in a year

AD = C + I + G + (X-M)

c- consumption

i- investment

g- government

x- exports

m -imports

c - consumption

disposable income - Yd = Y + TR -TA

(income + transfers - taxes)

marginal propesnity to consume (MPC)

ex if mpc = .6 stim check = 1200, .6×1200 = 720 (spent); 1200 - 720 = 480 saved

output and aggregate demand

gdp > AD - inventory accumulation, more produced than sold → decrease production, gdp falls

gpd < Ad, inventory depletion → increase production gdp rise

gdp=ad = macroeconomic equalibruium

marginal propensity to consume (mpc) margian propesnity to save (mps)

mpc -how much consumption changes when disposable income changes

mps - how much saving changes when disposable income changes

ex; mpc =.6 is 60% of the check

average propesnity to consume apc and save

apc = c/yd

aps = s/yd

• saving rate

consumption function

c = f(D)

→ ignore tax - YD = Y

c= c old + c new Y

investment

intrest rate → hugher - less investment spending

expceted rate of return on captial, higher if = more expected revenue, lower price of capital and to use

consumption smoothing

insure agaisnt shocks, keep consumtion constant

ex; saving for retirement, borrowing money for college

keynesian cross

spending multiplyier

taxes change when income changes, consumption spending and imports change when income changes

taxes - reduces the extend to which change in income leads to change in disposable income

imports - reduces the extend to which change in disposable income leads to change in home econ spending

higher tax rate = lower multiplier

more income spend on imports = lower multiplier

AS/AD, aggreae supply and demande

ad - same wiht regural S&D cruve

increaseing Gov or TR(total revenue) or decreasing TA (tax) shif ad to right, decreasing = left

increase money supply = sift ad right

increase prefrenece in saving will shift ad left, consumption will shift right

more wealth - ad right

long run AS curve (LRAS) - is gpd line

• vertical line, econ growth push it to right

short run AS curve

• upward sloping, both directions bc sticky wages/input costs

• more output = more input depend

• can extend lras but not forever bc costs and not sustainable

macroecon equilirium