ECON 104 Study Guide - Government Spending, Output Gap
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Introduction to macroeconomics econ 104a,c,d spring 2012. Worksheet 4 keynesian model of the economy: consider a closed, simple economy (not necessarily at full employment) with no government, characterized by the following equations, (c is consumption, pdi is personal disposable income, and i is investment): Expenditures: using the graph below, graph the consumption function, investment, and aggregate. Red= consumption function green= aggregated expenditures yellow-= investments. Y = income: on the graph, label the point where savings = 0, the point of equilibrium income. Then, derive the values for these using the equations above. So when investment is at 300, savings is also at 300. Since s=i in equilibrium savings is also reduced to 200. New equilibrium savings = 200: now, consider another, more elaborate open economy characterized by the following equations the economy is not necessarily at full employment: (numbers in billions) C = 500 + . 9(pdi) (c is consumption, pdi is y- tx)