ECO102H1 Lecture Notes - Aggregate Demand, Autonomous Consumption, Price Level

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ECO102H1 Full Course Notes
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ECO102H1 Full Course Notes
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Ad = c + i + g + (x-m) Household wealth and consumption: wealth (as well as disposable income) influences consumption, household has ,000 in cash, price level increases by 10, purchasing power of ,000 cash declines to ,000, household reduces consumption (change in autonomous consumption) Deriving the ad curve: ae schedule (drawn for a fixed price level, ae schedule shifts down as price level increases. P0: c0 + i + g + x0 m0 = y0. P1>p0: c1 + i + g + x1 m1 = y1. Y1 y0 = multiplier *(d c(decrease) + d x(decrease) Thus p1 > p0 y1 < y0. Y1 y0 = shift in ad curve. Aggregate supply (as: as: relation between real gdp (firms" desired production) and price level when prices of factors of production (including wages) are constant, price level (p) up = as up.

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