30.2 Graphing Aggregate Expenditure

Slides:



Advertisements
Similar presentations
1 CHAPTER.
Advertisements

Aggregate Expenditure CHAPTER 30 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Distinguish.
Graphs in order to survive Mr. Forrest’s class
Keynesian Macroeconomics: Aggregate Demand and the Multiplier Effect John Maynard Keynes, The General Theory of Employment, Interest and Money (1936) Great.
Income and Expenditures Equilibrium. 2 Equilibrium Real GDP: mpc =.7, mpi =.1 (1) Real GDP (Y) (2) Consumption (C) (3) Investment (I) (4) Gov’t Spending.
McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved Chapter 11 Spending and Output in the Short Run.
Output, growth and business cycles Econ 102. GDP Growth Countries: High savings rate have higher GDP/ cap. high population growth rates have low GDP/
AE Model and the Multiplier
Aggregate Demand - Aggregate Supply Equilibrium. The Fixed-Price Keynesian Model: An Economy Below Full – Employment Focus on the Demand Side.
The Income-Expenditure Model
28 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL © 2012 Pearson Addison-Wesley.
Aggregate Expenditure
Product Markets and National Output Chapter 12. Discussion Topics Circular flow of payments Composition and measurement of gross domestic product Consumption,
Copyright © 2010 Pearson Education. All rights reserved. Chapter 20 The ISLM Model.
Spending and Output in the Short Run Chapter 13. Chapter 13 Learning Objectives. You should be able to: List the components of investment. Distinguish.
Copyright © 2006 Pearson Education Canada Expenditure Multipliers PART 8Aggregate Demand and Inflation 23 CHAPTER.
Spending and Output in the Short Run Chapter 13. Chapter 13 Learning Objectives. You should be able to: List the components of investment. Distinguish.
AE = C + I + G + NX AE = GDP = Y = C + I + G + NX
C h a p t e r eleven © 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed. Prepared by: Fernando & Yvonn.
© 2010 Pearson Education CHAPTER 1. © 2010 Pearson Education.
13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL CHAPTER.
EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL
The Aggregate Economy Price Level AD AS RGDP LRAS FEQ1 PL1.
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Demand and Output in the Short Run.
Ch 9.The Aggregate Expenditures Model. (a) The investment demand curve and (b) the investment schedule a)The level of investment spending ($20 bill) is.
HOMEWORK PROBLEMS 9, 10, 12, 13 page 185
The Keynesian Model in Action To complete the Keynesian model by adding the government and the foreign sector.
AGGREGATE EXPENDITURE AND EQUILIBRIUM OUTPUT
Aim: What can the government do to bring stability to the economy?
The Aggregate Expenditures Model 28 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
1 ECON203 Principles of Macroeconomics Topic: Expenditure Multipliers: The Keynesian Model Dr. Mazharul Islam 9W/10/2013.
Income and Expenditure Chapter 11 THIRD EDITIONECONOMICS andMACROECONOMICS.
Factors that shift the consumption function 1. Changes in wealth – shift the consumption function. – Example: value of stocks, bonds, consumer durables.
11 EXPENDITURE MULTIPLIERS © 2014 Pearson Addison-Wesley After studying this chapter, you will be able to:  Explain how expenditure plans are determined.
International Trade and Equilibrium Output Chapter 10 continued.
Income and Expenditure
Chapter 9 Demand Side Equilibrium Rest of World Interest Rent Profits Wages Goods and Services Households Firms S I T G G Circular Flow Diagram C Total.
The Aggregate Expenditures Model Chapter 28 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Expenditure Multipliers: The Keynesian Model CHAPTER 12.
1 Chapter 19 The Keynesian Model in Action Key Concepts Key Concepts Summary Summary Practice Quiz Internet Exercises Internet Exercises ©2002 South-Western.
Chapter 9 Demand Side Equilibrium Aggregate Expenditures Aggregate Expenditures =AE Real Income = Real GDP = Y I = 1000 G = 500 NX = 300 Y = 5,000 C.
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 18: Spending, Output, and Fiscal Policy 1.Identify the.
CHAPTER 28 Income and Expenditure PowerPoint® Slides by Can Erbil © 2006 Worth Publishers, all rights reserved.
Output, growth and business cycles Econ 102. GDP Growth Countries:  High savings rate have higher GDP/ cap.  high population growth rates have low GDP/
© 2008 Pearson Education Canada22.1 Chapter 22 The ISLM Model.
Expenditure Multipliers: The Keynesian Model CHAPTER 12.
Lecture Seven Review: Short-run equilibrium Adding the government sector Lump sum tax and net tax.
The Aggregate Expenditures Model The beginning of the study of Macroeconomic Models and Fiscal Policy Please listen to the audio as you work through the.
1 The Keynesian Model in Action. 2 What is the purpose of this chapter? To complete the Keynesian model by adding the government (G) and the foreign sector.
Lecture Six Short-run equilibrium Multiplier Adding the government sector Fiscal Policy and Aggregate Expenditure Model.
The Aggregate Expenditure Model I. Tools of the Aggregate Expenditures Model: Aggregate expenditures – refers to the economy’s total spending. The Aggregate.
The Aggregate Expenditures Model What determines the level of GDP, given the nation’s production capacity? What causes real GDP to rise in one period and.
CHAPTER NINE NOTES-AP I. WHAT DETERMINES GDP? A. THE NEXT TWO CHAPTERS FOCUS ON THE AGGREGATE EXPENDITURES MODEL. DEFINITIONS AND FACTS FROM PREVIOUS CHAPTERS.
Chapter 13 – Private Sector Components of Aggregate Demand Read pages I Determining the Level of Consumption A)Consumption and Disposable Personal.
When you have completed your study of this chapter, you will be able to C H A P T E R C H E C K L I S T Distinguish between autonomous expenditure and.
1 FINA 353 Principles of Macroeconomics Lecture 8 Topic: Expenditure Multipliers: The Keynesian Model Dr. Mazharul Islam.
The Income-Expenditure Model
Chapter 9 The IS Curve.
Chapter 10 Appendices Outline Finding equilibrium GDP algebraically.
Chapter 19 The Keynesian Model in Action
Chapter 28 The Aggregate Expenditures Model McGraw-Hill/Irwin
28 EXPENDITURE MULTIPLIERS C l i c k e r Q u e s t i o n s.
The Aggregate Expenditures Model The beginning of the study of Macroeconomic Models and Fiscal Policy Please listen to the audio as you work through.
Economics: Notes for Teachers
Demand-Side Equilibrium: Multiplier Analysis
Aggregate Expenditures
9 The Aggregate Expenditures Model.
Aggregate Expenditures
The Aggregate Expenditures Model
Multiplier effect. The Keynesian multiplier The Marginal Propensities As national income rises or falls, the level of consumption among households varies.
Presentation transcript:

30.2 Graphing Aggregate Expenditure Induced AND Autonomous Expenditure combined Induced = Consumption – imports Real GDP = CE and Imports, C includes purchase of imports, but we only want to look at domestic expenditures so we subtract the value of imported goods Induced Expenditure is directly related to RGDP Autonomous = Investment, Government , Exports & AutoConE These change in relation to Interest rates, expectations, Gov’t policy priorities, and Global Demand

Graphing Aggregate Expenditures 45* reference line = Keynesian Cross represents equilibrium between AE & RGDP AND where actual investment = planned investment AE Line = C + I + G + NX C – is a function of MPC and DI whereas the others are not dependent on income – when C changes is when AE changes Where Reference line and AE cross=equilibrium & a good estimate of RGDP

Graphing Aggregate Expenditures The lines are from the table below Notice the constants for the Autonomous Expenditures The Blue line includes imports The Red line is AE after value of imports has been subtracted

Equilibrium Expenditure -Point on the AE where aggregate planned expenditure=RGDP If planned AE is below the equilibrium businesses will have to sell stock/inventory because demand > supply on hand, this leads to greater investment to catch up and replace inventory so RGDP will increase and equilibrium is restored (this occurs when the line is above the reference line) If planned AE is above the equilibrium businesses have excess stock on hand and begin to slow down production, this leads to lower RGDP and equilibrium is restored.

Gov’t Spending in AE Government Expenditures = part of Autonomous Expenditures, set by policies, but gov’t spending is typically funded by taxes which can affect disposable income higher G in formula should lead to higher AE, but if that spending is from higher taxes- the C would drop due to lower disposable income- so they might cancel each other out If economy is close to capacity- it can be negative due to crowding out affect If economy is in a large recessionary gap- it could pull people out of their financial holes So effects of Gov’t spending vary depending on state of economy when spending takes place and how that spending is funded

International Trade in AE Depends on whether we are looking at imports or exports Imports affect Induced Expend. in an inverse relationship Exports affect Autonomous in a direct relationship

Practice Problems p.781