ECON10003 Lecture 8: Week 4 Lecture 2

• School: University of Melbourne
• Department: Economics
• Course: ECON10003
• Professor: Laurence

Document Summary

Solving for equilibrium: diagrammatic approach: graph y and pae as a function of output, algebraic approach: substitute behavioural assumptions into y = pae and solve y. Comparative static: changes in exogenous variables: shift in the position of the pae curve, change in the values in the algebraic equation. Where: planned injections: sum of exogenous expenditure, leakages and withdraws: the part of income not used for consumption. = +(cid:1855)(cid:1851) (cid:1845)=(cid:1851) =(cid:4666)1 (cid:1855)(cid:4667)(cid:1851) (cid:4666)1 (cid:1855)(cid:4667)=(cid:1865)(cid:1870)(cid:1859)(cid:1861)(cid:1866)(cid:1864) (cid:1868)(cid:1870)(cid:1867)(cid:1868)(cid:1857)(cid:1866)(cid:1871)(cid:1861)(cid:1872) (cid:1867)(cid:1872) (cid:1871)(cid:1874)(cid:1857) (cid:1867)(cid:1873)(cid:1872) (cid:1867)(cid:1858) (cid:1861)(cid:1866)(cid:1855)(cid:1867)(cid:1865)(cid:1857) Paradox of thrift: effects of an increase in saving, common belief: an increase in saving leads to an increase in investment and productivity. I(cid:374) this (cid:373)odel: it lowers output a(cid:374)d would raise u(cid:374)e(cid:373)ploy(cid:373)e(cid:374)t (cid:894)oku(cid:374)"s law(cid:895: what element are important in reality that are mission from this model, this model is a demand side model and it ignores supply side consideration. Interest rates are assumed to be fixed and there is no change in planned investment.