MGEA06H3 Study Guide - Final Guide: Autarky, Shortage, Real Interest Rate

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MGEA06H3 Full Course Notes
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MGEA06H3 Full Course Notes
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Topic 3: part a aggregate expenditure the simplest short-run model. Model of the macro economy (in general form) Where ae = aggregate expenditure = aggregate demand. Cy = dae/dy = constant = marginal propensity to spend out of gdp. Y = gdp = output = income (here we refer to as output) Ae = c + i + g + x im. The equilibrium level of y, y*, is the level of y that generates enough ae to buy itself. C = c(di) where di = disposable income = (y t + tr) C1 = marginal propensity to consume out of di. Note: consumption is positively related to di, and consumers spend a fraction of their di on final goods and services. If t = 0 & tr = 0, then di = y. I = io dr where r = real interest rate. Io = constant = autonomous investment d = di/dr = constant.

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