Management and Organizational Studies 2275A/B Study Guide - Consumption Function, Economic Equilibrium, Chapter 27

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2275A/B
• Professor: Henry Meredith

Document Summary

Mps = s yd: the marginal propensity to consume plus the marginal propensity to save sum to, you can see this from the following: C + s = yd ( c yd)+ ( s yd) = ( yd yd) The relationship between imports and real gdp is determined by the marginal propensity to import: the marginal propensity to import is the fraction of an increase in real gdp that is spent on imports. It is calculated as the change in imports divided by the change in real gdp that brought it about, other things remaining the same. 1,100: the figure shows the ae curve. Figure 23. 6: equilibrium expenditure: above ,000 billion, aggregate planned expenditure is less than real gdp, so. Initially, equilibrium is at ,000 billion: when aggregate planned expenditure increases, the ae curve shifts upward, here, the ae curve shifts upward by billion, the new ae curve is ae1, equilibrium is now at ,200 billion.