ECO102H1 Lecture Notes - Inventory Investment, Autonomous Consumption, Parsec
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ECO102H1 Full Course Notes
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Recall gdp measures both national output and income. Gdp = y = ca + ia + ga + xa ma. 2) later: sr equilibrium with flexible prices. 3) even later: lr equilibrium with flexible prices. How to reach equilibrium y when prices are fixed. When the desired expenditure equals actual expenditure. Gdp (y) = national income = national output = actual expenditure. Ae = cp + ip + gp + xp - mp. The equilibrium when prices are fixed is when ae = y. Individuals does not have to equal: the simple model. Consider a world with no government, no trade (other countries), and fixed prices. Gp = ga = 0 since there is no gov"t. Xp = xa = 0 and mp = ma = 0 since there is no trade. The equilibrium is thus: ae = y. Cp+ ip = ca + ia: the consumption function.