ECON 2 Lecture Notes - Lecture 4: Fiscal Multiplier, Aggregate Supply

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As = ae (or ad) ~ c + i + g + (e m) Ae = c + i + g + (e m) Whenever the aggregate supply is equal to aggregate expenditure (or demand), then we have an equilibrium. When as > ae, then we have an unintended inventory accumulation. This results in the gdp being lowered, and unemployment rises. When as < ae, then we have an unintended inventory depletion. In this case, the gdp rises along with employment. So now the professor is going over handout 2, problem 2-c. it"s official. New formula: delta y = m multiplied by delta g. M = one divided by one minus mpc. Another way to say it one over mps. This means that for every one dollar the government spends, it quadruples in expense later (it gets re-spent four times). The higher the mpc, the higher the m. Just remember that mpc is no different than slope.

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