EC140 Lecture Notes - Lecture 21: Autonomous Consumption, Consumption Function, Macroeconomic Model

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yellowhound490

28 Mar 2016

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Key variables: y, c, i, g, x, im. Variable with a subscript a- actual value: ca is actual expenditure on consumpion, ima is actual imports (desired imports) Variable without a subscript is the planned or desired amount: c id desired expenditure on consumpion, g is desired government expenditure. Gdp measured in expenditure is made up of: consumpion, investment, government purchases, net exports. Ae= c + i + g + (x - im) Autonomous expenditure does not change when income changes. Understand the basic mechanics of a macroeconomic model: closed economy- no trade, no government, and no taxes, constant prices. People buy consumpion goods from disposable income, yd. In a model with no government or taxes: yd = y. What households do not spend on consumpion is savings. Consumpion is assumed to increase with disposable income: c = a + b x yd. Consumers are assumed to have some exising savings.

Related Questions

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 5000	I = Investment expenditure
G = 3000	G = government expenditure
X = 2000	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 3000

Which of the following increases equilibrium real GDP by $2000
Note: you should use the expenditure multipliers from class to get your answer.

	a.	increase in government expenditure (G) by $2000 and pay for it by raising taxes (T) by $2000
	b.	increase government expenditure (G) by $2000 and pay for it by borrowing money
	c.	increase taxes (T) by $2000
	d.	decrease taxes (T) by $2000
	e.	all of the above
	f.	none of the above

greybutterfly911

Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 2000	I = Investment expenditure
G = 1000	G = government expenditure
X = 1600	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 1000
Yp = 12000	Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

	a.	inflationary gap
	b.	recessionary gap
	c.	no output gap
	d.	government budget surplus
	e.	government budget deficit
	f.	balanced government budget
	g.	trade deficit
	h.	trade surplus
	i.	net exports of zero

pucearmadillo585

The following is a model of a closed economy with no government.

C = 44 + 0.6YD; I = 12

Where C = desired consumption expenditure (in billions of $), YD =disposable income (in billions of $), and I = desired investment expenditure (in billions of $).

m) At equilibrium, what do the injections and the withdrawals in this economy equal?
n) Give two reasons why investment would change from I = 12 to I =18.
o) What are the new equilibrium levels of Y, C, S, and YD if investment changed from I = 12 to I = 18?
p) What is the size of the (simple) multiplier?
q) What is the change in Y in the 3rd round of the multiplier effect as a result of the change in investment in part n?

purplegnat513

EC140 Lecture Notes - Lecture 21: Autonomous Consumption, Consumption Function, Macroeconomic Model

EC140 Full Course Notes

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