MGEA06H3 Lecture Notes - Ferrari P, 1, Consumption Function
16 Jun 2013
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MGEA06H3 Full Course Notes
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C = 50 + 0. 75y (p 100: the ae function: Ae = [50 + 0. 75y (p 100)] +[100 3(0. 04 0. 04)] Ae = 250 + 0. 75y p: the ad function. P = 250 0. 25y: the slope of the ad function is downward sloping because dy dp < 0. 800: see page 2 for the linked diagram. Suppose at r = 0. 04 investment increases to 125: the new ae function: Ae = [50 + 0. 75y (p 100)] +[125 3(0. 04 0. 04)] Ae = 275 + 0. 75y p: the new ad function. P = 275 0. 25y: the shift in ad: The shift in ad = m to ad1 by 100) Proof: if p = 100, y = 1100 4(100) = 700, which is 100 more than the case in part (a). dy. 25 = 100 (for any given price level, ad shifts to the right. 1: see page 2 for the linked diagram.
