EC140 Lecture Notes - Lecture 6: Real Interest Rate, Consumption Function, Opportunity Cost

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EC140 Full Course Notes
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Ec140 lecture #6: the simplest short-run macro model (continued) The aggregate expenditure function the ae function relates desired aggregate expenditure to actual national income in the absence of government and international trade, desired aggregate expenditure is. Changes in equilibrium national income two types of shifts can occur with the ae function: the ae function can shift parallel to itself, the slope of the ae function can change. The multiplier the multiplier is a measure of the size of the change in equilibrium, y, that results from a change in autonomous expenditure in our simplest of macro models, the multiplier exceeds one. , where z is the marginal propensity to spend out of national income and a is the change in autonomous expenditure. The size of the simple multiplier larger z = Ae=(a+i )+by let a=a+i equilibrium: y = ae y =a+by. 1 b so for every dollar increase in autonomous expenditure, y increases by.

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