Textbook Notes (290,000)
CA (170,000)
Ryerson (10,000)
ECN (800)
ECN 204 (300)
Chapter 10

ECN204 Chapter 10: Chapter 10 Basic Macroeconomic Relationships


Department
Economics
Course Code
ECN 204
Professor
Eric Kam
Chapter
10

This preview shows pages 1-2. to view the full 8 pages of the document.
10.1$ The$Income-Consumption$and$Income-Saving$
Relationships
Saving'(S)'='Disposable'Income'(DI)'- Consumption'(C)
!"#$%"#&'()*+*"$#,*)(-'()#./0.%-&*(#,10$*(2345
10,.6$/+#0,("#.*.(%.(#,10$*(#,1"*%.*.
.%7#,8(#.(,*8%+#7*(2)#..%7#,8(0116".5(9:*,(+:*(10,.6$/+#0,(
.1:*)6&*(#.(%-07*(+:*(;<()*8"**(&#,*
.%7#,8(#.(/0.#+#7*(9:*,(+:*(10,.6$/+#0,( .1:*)6&*(#.(-*&09(;<(
)*8"**(&#,*
3#"*1+("*&%+#0,.=
Consumption$and$Saving
2#,(+:*(%88"*8%+*5(:06.*:0&).(#,1"*%.*(+:*#"(./*,)#,8(%.(+:*#"(
)#./0.%-&*(#,10$*("#.*.(%,)(./*,)(%(&%"8*"(/"0/0"+#0,(0>(%(
.$%&&*"()#./0.%-&*(#,10$*(+:%,(%(&%"8*"()#./0.%-&*(#,10$*
Consumption$Schedule$(C)
A%7#,8(*B6%&.()#./0.%-&*(#,10$*(&*..(10,.6$/+#0,((S#=#DI#-C)
Saving$Schedule$(S)
APC'='consumption/income
APS'='saving/income
F!G(#.(+:*(,6$*"#1%&(7%&6*(0>(+:*(.&0/(0.(+:*(10,.6$/+#0,(
.1:*)6&*
MPC'='change'in'consumption/change'in'income
D:*(/"0/0"+#0,E>"%1+#0,( 0>(%,'(1:%,8*(#,(#,10$*(10,.6$*)(#.(1%&&*)(
Marginal'Propensity'to'Consume'(MPC),'with#marginal#meaning#
extra#or#a#change#in
F!A(#.(+:*(,6$*"#1%&(7%&6*(0>(+:*(.&0/*(0>(+:*(.%7#,8(.1:*)6&*
MPS'='change'in'saving/change'in'income
D:*(>"%1+#0,(0>(%,'(1:%,8*(#,(#,10$*(.%7*)(#.(+:*(Marginal'
Propensity'to'Save'(MPS)
Average$ and$Marginal$Propensities
Wealth'effect .:#>+.(+:*(10,.6$/+#0,( .1:*)6&*(6/9%")(%,)(+:*(
.%7#,8(.1:*)6&*()09,9%")
H*%&+:
I0""09#,8
JK/*1+%+#0,.
?*%&(4,+*"*.+(?%+*.
10.2$ Non-Income$Determinants$of$Consumption$and$
Saving
Switching'to'Real'GDP @9:*,()*7*&0/#,8($%1"0*10,0$#1( $0)*&.L(
*10,0$#.+.(1:%,8*(+:*#"(>016.(>"0$(+:*("*&%+#0,.:#/(-*+9**,(
10,.6$/+#0,(2%,)(.%7#,85(%,)()#./0.%-&*(#,10$*(+0(+:*("*&%+#0,.:#/(
-*+9**,(10,.6$/+#0,( 2%,)(.%7#,85(%,)("*%&()0$*.+#1(06+/6+(2"*%&(
M3!5(@.#,1*(+:*'(9%,+(+0(N,09(:09(1:%,8*.(#,(10,.6$/+#0,(%,)(
.%7#,8(%>>*1+(+:*(06+/6+(0>(+:*(*,+#"*(*10,0$'L(,0+(O6.+()#./0.%-&*(
#,10$*
Changing'Along'Schedules @+:*($07*$*,+( >"0$(0,*(/0#,+( +0(
%,0+:*"(0,(%(10,.6$/+#0,(.1:*)6&*(@%(1:%,8*(#,(+:*(%$06,+(
10,.6$*)(@#.(.0&*&'( 1%6.*)(-'(%(1:%,8*(#,()#./0.%-&*(#,10$*(20"(
M3!5
Simultaneous'Shifts @1:%,8*.(#,(9*%&+:L(-0""09#,8L(*K/*1+%+#0,.L(
%,)("*%&(#,+*"*.+("%+*.(9#&&(.:#>+(+:*(10,.6$/+#0,(.1:*)6&*(#,(0,*(
)#"*1+#0,(%,)(+:*(.%7#,8(.1:*)6&*(#,(+:*(0//0.#+*()#"*1+#0,P
D%K*.(%"*(/%#)(/%"+&'(%+(+:*(*K/*,.*(0>(10,.6$/+#0,( %,)(/%"+&'(
%+(+:*(*K/*,.*(0>(.%7#,8
Taxation'@%(1:%,8*(#,(+%K*.(.:#>+.(+:*(10,.6$/+#0,(%,)(.%7#,8(
.1:*)6&*.(#,(+:*(.%$*()#"*1+#0,
A+%-#&#+'($%'(-*(-*1%6.*(1:%,8*.(#,(+:*(,0,@#,10$*(
)*+*"$#,%,+.(>"*B6*,+&'(90"N(#,(0//0.#+*()#"*1+#0,.(%,)(
+:*"*>0"*($%'(1%,1*&(*%1:(0+:*"(06+
Stability @+:*(10,.6$/+#0,E.%7#,8( .1:*)6&*(%"*("*&%+#7*&'(.+%-&*(
6,&*..(%&+*"*)(-'($%O0"(+%K(#,1"*%.*.(0"()*1"*%.*.
Other$Important$Considerations
4,7*.+$*,+.(10,.#.+.(0>(*K/*,)#+6"*.(0,(,*9(/&%,+.L(1%/#+%&(
*B6#/$*,+L($%1:#,*"'L(%,)(#,7*,+0"#*.
D:*($%"8#,%&(-*,*>#+(>"0$(#,7*.+$*,+(#.(+:*(*K/*1+*)("%+*(0>(
"*+6",(-6.#,*..(:0/*(+0("*%&#Q*
D:*($%"8#,%&(10.+( #.(+:*(#,+*"*.+("%+*(+:%+($6.+(-*(/%#)(>0"(
-0""09#,8(>6,).
I6.#,*..*.(9#&&(#,7*.+(#,(%&&(/"0O*1+.(>0"(9:#1:(+:*(*K/*1+*)("%+*(
0>("*+6",(*K1**).(+:*(#,+*"*.+("%+*
JK/*1+*)("*+6",.(2/"0>#+.5(%,)(+:*(#,+*"*.+("%+*(+:*"*>0"*(%"*(+:*(
+90( -%.#1()*+*"$#,%,+.(0>(#,7*.+$*,+(./*,)#,8
4,7*.+$*,+()*1#.#0,( #.(%($%"8#,%&@-*,*>#+@$%"8#,%&@10.+( )*1#.#0,=
10.3$ The$Interest$Rate$-Investment$Relationship
JK/*1+*)(?%+*(0>(?*+6",L("
Expected$Rate$of$Return
4,+*"*.+(@+:*(>#,%,1#%&(10.+(0>(-0""09#,8( +:*(money 1%/#+%&("*B6#"*)(+0(
/6"1:%.*(+:*(real 1%/#+%&
Interest'Cost'='interest'rate'(i)'x'amount'borrowed
i'='nominal'rate'-rate'of'inflation
4,+*"*.+(10.+(R(#,+*"*.+*)(2#5(K(%$06,+(-0""09*)
The$Real$Interest$Rate
A:09.(+:*(%$06,+(0>(#,7*.+$*,+(>0"+:10$#,8(%+(*%1:("*%&(
#,+*"*.+("%+*
D:*(#,7*".*(2)09,9%")@.&0//#,85("*&%+#0,.:#/(-*+9**,(+:*(#,+*"*.+(
"%+*(2/"#1*5(%,)()0&&%"(B6%,+#+'(0>(#,7*.+$*,+()*$%,)*)(10,>0"$.(
9#+:( +:*(&%9(0>()*$%,)
Investment$Demand$Curve
10.4$ Shifts$the$Investment$Demand$Curve
D:*(#,#+#%&( 10.+.(0>(1%/#+%&(800).L( %,)(+:*(*.+#$%+*)(10.+.(0>(0/*"%+#,8(
%,)($%#,+%#,#,8(+:0.*(800).L(%>>*1+(+:*(*K/*1+*)("%+*(0>("*+6",(0,(
#,7*.+$*,+
H:*,(10.+(>%&&.L(+:*(*K/*1+*)("%+*(0>("*+6",(>"0$(/"0./*1+#7*(
#,7*.+$*,+(/"0O*1+.("#.*.L(.:#>+#,8(+:*(#,7*.+$*,+()*$%,)(16"7*(+0(
+:*("#8:+
S#8:*"(10.+.L(.:#>+(+:*(16"7*(+0(+:*(&*>+
Acquisition,$Maintenance,$and$Operating$Costs
210,.#)*"#,8(807*",$*,+5(>#"$.(&00N(+0(*K/*1+*)("*+6",. after#taxes
#,($%N#,8(+:*#"(#,7*.+$*,+()*1#.#0,.
T,(#,1"*%.*(#,(-6.#,*..(+%K*.(&09*".(+:*(*K/*1+*)(/"0>#+%-#&#+'(+0(
#,7*.+$*,+.(%,)(.:#>+.(+:*(#,7*.+$*,+()*$%,)(16"7*(+0(+:*(&*>+U( %(
"*)61+#0,(0>(-6.#,*..(+%K*.(.:#>+(#+(+0(+:*("#8:+
Business$ Taxes
D*1:,0&08#1%&( /"08"*..(@+:*()*7*&0/$*,+( 0>(,*9(/"0)61+.L(
#$/"07*$*,+.(#,(*K#.+#,8(/"0)61+.L(%,)(+:*(1"*%+#0,(0>(,*9(
$%1:#,*"'(%,)(+:*(/"0)61+#0,( /"01*..*.(@.#$6&%+*.(#,7*.+$*,+
D:*()*7*&0/$*,+(0>(%($0"*(*>>#1#*,+($%1:#,*L(&09*".(/"0)61+#0,( 10.+.(
0"(#$/"07*.(/"0)61+(B6%&#+'(%,)(#,1"*%.*.(+:*(*K/*1+*)("%+*(0>("*+6",(
>"0$(#,7*.+#,8(#,(+:*($%1:#,*
!"0>#+%-&*(,*9(/"0)61+.(#,)61*(%(>&6""'(0>(#,7*.+$*,+(%.(>#"$.(+00&(6/(
>0"(*K/%,)*)(/"0)61+#0,
T("%/#)("%+*(0>(+*1:,0&08#1%&(/"08"*..(.:#>+.(+:*(#,7*.+$*,+()*$%,)(
16"7*(+0(+:*("#8:+
Technological$Change
V*..(#,7*.+$*,+(#.(>0"+:10$#,8(%+(*%1:("*%&(#,+*"*.+("%+*U(+:*(
#,7*.+$*,+()*$%,)(16"7*(.:#>+.(&*>+9%")
H:*,(+:*(*10,0$'(#.(07*".+01N(9#+:(+:*(/"0)61+#0,(>%1#&#+#*.(%,)(
9:*,(>#"$.(:%7*(*K1*..#7*(#,7*,+0"#*.(0>(>#,#.:*)(800).L(+:*(*K/*1+*)(
"%+*(0>("*+6",(0,(,*9(#,7*.+$*,+()*1&#,*.
H:*,(%,(*10,0$'(#.(6,)*".+01N*)(9#+:(/"0)61+#0,(>%1#&#+#*.L( %,)(
9:*,(>#"$.(%"*(.*&&#,8(+:*#"(06+/6+(%.(B6#1N&'( %.(+:*'(1%,(/"0)61*(#+L(
+:*(*K/*1+*)("%+*(0>("*+6",(0,(,*9(#,7*.+$*,+(#,1"*%.*.(%,)(+:*(
#,7*.+$*,+()*$%,)(16"7*(.:#>+.("#8:+(9%")
Stock$of$Capital$Goods$on$Hand
4,7*.+$*,+()*$%,)(16"7*L()*%&.(9#+:(/&%,,*)(#,7*.+$*,+(0,&'L(%,)(#.(
%>>*1+*)(0,&'(-'(/&%,,*)(1:%,8*.(+:%+(>#"$.()*.#"*(+0($%N*(+0(+:*#"(
#,7*,+0"'(&*7*&.
4>(>#"$.(/&%,(+0(#,1"*%.*(+:*#"(#,7*,+0"#*.L(+:*(#,7*.+$*,+()*$%,)(
16"7*(.:#>+.(+0(+:*("#8:+
4>(>#"$.(/&%,(+0()*1"*%.*(+:*#"(#,7*,+0"#*.L(+:*(#,7*.+$*,+()*$%,)(
16"7*(.:#>+.(+0(+:*(&*>+
W#"$.($%N*(/&%,,*)(1:%,8*.(+0(+:*#"(#,7*,+0"'(&*7*&.($0.+&'(-*1%6.*(
+:*'(%"*(*K/*1+#,8(*#+:*"(>%.+*"(0"(.&09*"(.%&*.
W#"$(+:%+(#.(*K/*1+#,8(#+.(.%&*.(+0()06-&*L(9#&&(N**/($0"*(#,7*,+0"'(#,(
.+01N
W#"$(+:%+(#.(*K/*1+#,8(.&09*"(.%&*.(9#&&(/&%,(0,("*)61#,8(#,7*,+0"'
Planned$Inventory
I6.#,*..(#,7*.+$*,+(#.(-%.*)(0,(*K/*1+*)("*+6",.(2%))#+#0,.(+0(
/"0>#+5
JK/*1+*)("%+*(0>("*+6",(0,(1%/#+%&(#,7*.+$*,+()*/*,).(0,(+:*(>#"$X.(
*K/*1+%+#0,.(0>(>6+6"*(.%&*.L(>6+6"*(0/*"%+#,8(10.+.L(%,)(>6+6"*(
/"0>#+%-#&#+'(0>(+:*(/"0)61+(+:%+(+:*(1%/#+%&(:*&/.(+0(/"0)61*
F0"*(0/+#$#.+#1( %-06+(>6+6"*(.%&*.E10.+.E/"0>#+.L(+:*(#,7*.+$*,+(
)*$%,)(16"7*(9#&&(.:#>+(+0(+:*("#8:+U(%(/*..#$#.+#1(06+&00N( 9#&&(.:#>+(#+(
+0(+:*(&*>+
Expectations
4,7*.+$*,+(.1:*)6&*(>&61+6%+*.(
D:*(.9#,8.(#,(#,7*.+$*,+( #,("*%&(+*"$.(%"*(8"*%+*"(+:%,(+:*(.9#,8.(#,(
"*%&(M3!
Variability$of$Expectations
Durability
Irregularity$of$Innovation
Variability$of$Profits
Fluctuations$of$Investment
T(1:%,8*(#,(./*,)#,8@.%'L(#,7*.+$*,+(@1:%,8*.(+:*(06+/6+(%,)(
#,10$*( -'($0"*(+:%,(+:*(#,#+#%&( 1:%,8*(#,(#,7*.+$*,+(./*,)#,8
G:%,8*.(#,(10,.6$/+#0,(26,"*&%+*)(+0(1:%,8*.(#,(
#,10$*5L( ,*+(*K/0"+.L(%,)(807*",$*,+(/6"1:%.*.(%&.0(
&*%)(+0( +:*($6&+#/&#*"( *>>*1+
D:*(initial'change'in'spending #.(6.6%&&'(%..01#%+*)(9#+:(
#,7*.+$*,+(./*,)#,8(-*1%6.*(0>(#,7*.+$*,+X.(70&%+#&#+'
Y5
D:*(#,#+#%&( 1:%,8*(#,(./*,)#,8(%..01#%+*)(9#+:( #,7*.+$*,+(
./*,)#,8("*.6&+.(>"0$(%(1:%,8*(#,(+:*("*%&(#,+*"*.+("%+*E%,)(
0"(.:#>+(0>(+:*(#,7*.+$*,+()*$%,)(16"7*
Z5
4$/&#1#+( #,(+:*(/"*1*)#,8(/0#,+(#.( +:%+(+:*($6&+#/&#*"( 90"N.(
#,(-0+:()#"*1+#0,.P( T,(#,1"*%.*(#,(#,#+#%&( ./*,)#,8(9#&&(
1"*%+*(%($6&+#/&*(#,1"*%.*(#,(M3!U(%()*1"*%.*(#,(./*,)#,8(
9#&&( 1"*%+*(%(&%"8*"()*1"*%.*(#,(M3!
[5
Multiplier'='change'in'real'GDP/initial'change'in'spending
D:*(multiplier )*+*"$#,*.(:09($61:(&%"8*"(+:*(1:%,8*(9#&&(-*U(#+(#.(
+:*("%+#0(0>(%(1:%,8*(M3!(+0(+:*(#,#+#%&( 1:%,8*(#,(./*,)#,8
10.5$ The$Multiplier$Effect
Multiplier'='1/1'-MPC
MPC'+'MPS'='1
Multiplier'='1/MPS
D:*(F!G(%,)(+:*($6&+#/&#*"( %"*()#"*1+&'("*&%+*)L(%,)(+:*(F!A(%,)(+:*(
$6&+#/&#*"(%"*(#,7*".*&'("*&%+*)
T(&%"8*(F!G(2.$%&&(F!A5($*%,.(+:%+(.611**)#,8("06,).(0>(
10,.6$/+#0,(./*,)#,8(%"*()#$#,#.:#,8(.&09&'U(16$6&%+*(+0(%(&%"8*(
1:%,8*(#,(#,10$*
The$Multiplier$and$the$Marginal$Propensities
T1+6%&($6&+#/&#*"(#.(&09*"(+:%,(+:*($0)*&(%..6$*.
G0,.6$*".(-6'(#$/0"+*)(/"0)61+.
S06.*:0&).(/%'(#,10$*(+%K*.
4,>&%+#0,
F6&+#/&#*"($%'(-*(1&0.*(+0(Q*"0
How$Large$is$the$Actual$Multiplier$Effect?
G:%/+*"(Y\=(I%.#1(F%1"0*10,0$#1(?*&%+#0,.:#/.
Friday,*March*4,*2016
2:39*PM

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

10.1$ The$Income-Consumption$and$Income-Saving$
Relationships
Saving'(S)'='Disposable'Income'(DI)'- Consumption'(C)
!"#$%"#&'()*+*"$#,*)(-'()#./0.%-&*(#,10$*(2345
10,.6$/+#0,("#.*.(%.(#,10$*(#,1"*%.*.
.%7#,8(#.(,*8%+#7*(2)#..%7#,8(0116".5(9:*,(+:*(10,.6$/+#0,(
.1:*)6&*(#.(%-07*(+:*(;<()*8"**(&#,*
.%7#,8(#.(/0.#+#7*(9:*,(+:*(10,.6$/+#0,( .1:*)6&*(#.(-*&09(;<(
)*8"**(&#,*
3#"*1+("*&%+#0,.=
Consumption$and$Saving
2#,(+:*(%88"*8%+*5(:06.*:0&).(#,1"*%.*(+:*#"(./*,)#,8(%.(+:*#"(
)#./0.%-&*(#,10$*("#.*.(%,)(./*,)(%(&%"8*"(/"0/0"+#0,(0>(%(
.$%&&*"()#./0.%-&*(#,10$*(+:%,(%(&%"8*"()#./0.%-&*(#,10$*
?*>&*1+.(+:*()#"*1+(10,.6$/+#0,@)#./0.%-&*( #,10$*("*&%+#0,.:#/
Consumption$Schedule$(C)
A%7#,8(*B6%&.()#./0.%-&*(#,10$*(&*..(10,.6$/+#0,((S#=#DI#-C)
C,&'(,**)(+0( .6-+"%1+(10,.6$/+#0,( >"0$()#./0.%-&*(#,10$*(+0( >#,)(
+:*(%$06,+(.%7*)(%+(*%1:(34
Saving$Schedule$(S)
APC'='consumption/income
D:*(>"%1+#0,E/*"1*,+%8*(0>(+0+%&( #,10$*(+:%+(#.(10,.6$*)(#.(+:*(
Average'Propensity'to'Consume'(APC)
APS'='saving/income
D:*(>"%1+#0,(0>(+0+%&( #,10$*(+:%+(#.(.%7*)(#.(+:*(Average'Propensity'
to'Save'(APS)
F!G(#.(+:*(,6$*"#1%&(7%&6*(0>(+:*(.&0/(0.(+:*(10,.6$/+#0,(
.1:*)6&*
MPC'='change'in'consumption/change'in'income
D:*(/"0/0"+#0,E>"%1+#0,( 0>(%,'(1:%,8*(#,(#,10$*(10,.6$*)(#.(1%&&*)(
Marginal'Propensity'to'Consume'(MPC),'with#marginal#meaning#
extra#or#a#change#in
F!A(#.(+:*(,6$*"#1%&(7%&6*(0>(+:*(.&0/*(0>(+:*(.%7#,8(.1:*)6&*
MPS'='change'in'saving/change'in'income
D:*(>"%1+#0,(0>(%,'(1:%,8*(#,(#,10$*(.%7*)(#.(+:*(Marginal'
Propensity'to'Save'(MPS)
Average$ and$Marginal$Propensities
Wealth'effect .:#>+.(+:*(10,.6$/+#0,( .1:*)6&*(6/9%")(%,)(+:*(
.%7#,8(.1:*)6&*()09,9%")
H*%&+:
I0""09#,8
JK/*1+%+#0,.
?*%&(4,+*"*.+(?%+*.
10.2$ Non-Income$Determinants$of$Consumption$and$
Saving
Switching'to'Real'GDP @9:*,()*7*&0/#,8($%1"0*10,0$#1( $0)*&.L(
*10,0$#.+.(1:%,8*(+:*#"(>016.(>"0$(+:*("*&%+#0,.:#/(-*+9**,(
10,.6$/+#0,(2%,)(.%7#,85(%,)()#./0.%-&*(#,10$*(+0(+:*("*&%+#0,.:#/(
-*+9**,(10,.6$/+#0,( 2%,)(.%7#,85(%,)("*%&()0$*.+#1(06+/6+(2"*%&(
M3!5(@.#,1*(+:*'(9%,+(+0(N,09(:09(1:%,8*.(#,(10,.6$/+#0,(%,)(
.%7#,8(%>>*1+(+:*(06+/6+(0>(+:*(*,+#"*(*10,0$'L(,0+(O6.+()#./0.%-&*(
#,10$*
Changing'Along'Schedules @+:*($07*$*,+( >"0$(0,*(/0#,+( +0(
%,0+:*"(0,(%(10,.6$/+#0,(.1:*)6&*(@%(1:%,8*(#,(+:*(%$06,+(
10,.6$*)(@#.(.0&*&'( 1%6.*)(-'(%(1:%,8*(#,()#./0.%-&*(#,10$*(20"(
M3!5
Simultaneous'Shifts @1:%,8*.(#,(9*%&+:L(-0""09#,8L(*K/*1+%+#0,.L(
%,)("*%&(#,+*"*.+("%+*.(9#&&(.:#>+(+:*(10,.6$/+#0,(.1:*)6&*(#,(0,*(
)#"*1+#0,(%,)(+:*(.%7#,8(.1:*)6&*(#,(+:*(0//0.#+*()#"*1+#0,P
D%K*.(%"*(/%#)(/%"+&'(%+(+:*(*K/*,.*(0>(10,.6$/+#0,( %,)(/%"+&'(
%+(+:*(*K/*,.*(0>(.%7#,8
Taxation'@%(1:%,8*(#,(+%K*.(.:#>+.(+:*(10,.6$/+#0,(%,)(.%7#,8(
.1:*)6&*.(#,(+:*(.%$*()#"*1+#0,
A+%-#&#+'($%'(-*(-*1%6.*(1:%,8*.(#,(+:*(,0,@#,10$*(
)*+*"$#,%,+.(>"*B6*,+&'(90"N(#,(0//0.#+*()#"*1+#0,.(%,)(
+:*"*>0"*($%'(1%,1*&(*%1:(0+:*"(06+
Stability @+:*(10,.6$/+#0,E.%7#,8( .1:*)6&*(%"*("*&%+#7*&'(.+%-&*(
6,&*..(%&+*"*)(-'($%O0"(+%K(#,1"*%.*.(0"()*1"*%.*.
Other$Important$Considerations
4,7*.+$*,+.(10,.#.+.(0>(*K/*,)#+6"*.(0,(,*9(/&%,+.L(1%/#+%&(
*B6#/$*,+L($%1:#,*"'L(%,)(#,7*,+0"#*.
D:*($%"8#,%&(-*,*>#+(>"0$(#,7*.+$*,+(#.(+:*(*K/*1+*)("%+*(0>(
"*+6",(-6.#,*..(:0/*(+0("*%&#Q*
D:*($%"8#,%&(10.+( #.(+:*(#,+*"*.+("%+*(+:%+($6.+(-*(/%#)(>0"(
-0""09#,8(>6,).
I6.#,*..*.(9#&&(#,7*.+(#,(%&&(/"0O*1+.(>0"(9:#1:(+:*(*K/*1+*)("%+*(
0>("*+6",(*K1**).(+:*(#,+*"*.+("%+*
JK/*1+*)("*+6",.(2/"0>#+.5(%,)(+:*(#,+*"*.+("%+*(+:*"*>0"*(%"*(+:*(
+90( -%.#1()*+*"$#,%,+.(0>(#,7*.+$*,+(./*,)#,8
4,7*.+$*,+()*1#.#0,( #.(%($%"8#,%&@-*,*>#+@$%"8#,%&@10.+( )*1#.#0,=
10.3$ The$Interest$Rate$-Investment$Relationship
JK/*1+*)(?%+*(0>(?*+6",L("
Expected$Rate$of$Return
4,+*"*.+(@+:*(>#,%,1#%&(10.+(0>(-0""09#,8( +:*(money 1%/#+%&("*B6#"*)(+0(
/6"1:%.*(+:*(real 1%/#+%&
Interest'Cost'='interest'rate'(i)'x'amount'borrowed
i'='nominal'rate'-rate'of'inflation
4,+*"*.+(10.+(R(#,+*"*.+*)(2#5(K(%$06,+(-0""09*)
The$Real$Interest$Rate
A:09.(+:*(%$06,+(0>(#,7*.+$*,+(>0"+:10$#,8(%+(*%1:("*%&(
#,+*"*.+("%+*
D:*(#,7*".*(2)09,9%")@.&0//#,85("*&%+#0,.:#/(-*+9**,(+:*(#,+*"*.+(
"%+*(2/"#1*5(%,)()0&&%"(B6%,+#+'(0>(#,7*.+$*,+()*$%,)*)(10,>0"$.(
9#+:( +:*(&%9(0>()*$%,)
Investment$Demand$Curve
10.4$ Shifts$the$Investment$Demand$Curve
D:*(#,#+#%&( 10.+.(0>(1%/#+%&(800).L( %,)(+:*(*.+#$%+*)(10.+.(0>(0/*"%+#,8(
%,)($%#,+%#,#,8(+:0.*(800).L(%>>*1+(+:*(*K/*1+*)("%+*(0>("*+6",(0,(
#,7*.+$*,+
H:*,(10.+(>%&&.L(+:*(*K/*1+*)("%+*(0>("*+6",(>"0$(/"0./*1+#7*(
#,7*.+$*,+(/"0O*1+.("#.*.L(.:#>+#,8(+:*(#,7*.+$*,+()*$%,)(16"7*(+0(
+:*("#8:+
S#8:*"(10.+.L(.:#>+(+:*(16"7*(+0(+:*(&*>+
Acquisition,$Maintenance,$and$Operating$Costs
210,.#)*"#,8(807*",$*,+5(>#"$.(&00N(+0(*K/*1+*)("*+6",. after#taxes
#,($%N#,8(+:*#"(#,7*.+$*,+()*1#.#0,.
T,(#,1"*%.*(#,(-6.#,*..(+%K*.(&09*".(+:*(*K/*1+*)(/"0>#+%-#&#+'(+0(
#,7*.+$*,+.(%,)(.:#>+.(+:*(#,7*.+$*,+()*$%,)(16"7*(+0(+:*(&*>+U( %(
"*)61+#0,(0>(-6.#,*..(+%K*.(.:#>+(#+(+0(+:*("#8:+
Business$ Taxes
D*1:,0&08#1%&( /"08"*..(@+:*()*7*&0/$*,+( 0>(,*9(/"0)61+.L(
#$/"07*$*,+.(#,(*K#.+#,8(/"0)61+.L(%,)(+:*(1"*%+#0,(0>(,*9(
$%1:#,*"'(%,)(+:*(/"0)61+#0,( /"01*..*.(@.#$6&%+*.(#,7*.+$*,+
D:*()*7*&0/$*,+(0>(%($0"*(*>>#1#*,+($%1:#,*L(&09*".(/"0)61+#0,( 10.+.(
0"(#$/"07*.(/"0)61+(B6%&#+'(%,)(#,1"*%.*.(+:*(*K/*1+*)("%+*(0>("*+6",(
>"0$(#,7*.+#,8(#,(+:*($%1:#,*
!"0>#+%-&*(,*9(/"0)61+.(#,)61*(%(>&6""'(0>(#,7*.+$*,+(%.(>#"$.(+00&(6/(
>0"(*K/%,)*)(/"0)61+#0,
T("%/#)("%+*(0>(+*1:,0&08#1%&(/"08"*..(.:#>+.(+:*(#,7*.+$*,+()*$%,)(
16"7*(+0(+:*("#8:+
Technological$Change
V*..(#,7*.+$*,+(#.(>0"+:10$#,8(%+(*%1:("*%&(#,+*"*.+("%+*U(+:*(
#,7*.+$*,+()*$%,)(16"7*(.:#>+.(&*>+9%")
H:*,(+:*(*10,0$'(#.(07*".+01N(9#+:(+:*(/"0)61+#0,(>%1#&#+#*.(%,)(
9:*,(>#"$.(:%7*(*K1*..#7*(#,7*,+0"#*.(0>(>#,#.:*)(800).L(+:*(*K/*1+*)(
"%+*(0>("*+6",(0,(,*9(#,7*.+$*,+()*1&#,*.
H:*,(%,(*10,0$'(#.(6,)*".+01N*)(9#+:(/"0)61+#0,(>%1#&#+#*.L( %,)(
9:*,(>#"$.(%"*(.*&&#,8(+:*#"(06+/6+(%.(B6#1N&'( %.(+:*'(1%,(/"0)61*(#+L(
+:*(*K/*1+*)("%+*(0>("*+6",(0,(,*9(#,7*.+$*,+(#,1"*%.*.(%,)(+:*(
#,7*.+$*,+()*$%,)(16"7*(.:#>+.("#8:+(9%")
Stock$of$Capital$Goods$on$Hand
4,7*.+$*,+()*$%,)(16"7*L()*%&.(9#+:(/&%,,*)(#,7*.+$*,+(0,&'L(%,)(#.(
%>>*1+*)(0,&'(-'(/&%,,*)(1:%,8*.(+:%+(>#"$.()*.#"*(+0($%N*(+0(+:*#"(
#,7*,+0"'(&*7*&.
4>(>#"$.(/&%,(+0(#,1"*%.*(+:*#"(#,7*,+0"#*.L(+:*(#,7*.+$*,+()*$%,)(
16"7*(.:#>+.(+0(+:*("#8:+
4>(>#"$.(/&%,(+0()*1"*%.*(+:*#"(#,7*,+0"#*.L(+:*(#,7*.+$*,+()*$%,)(
16"7*(.:#>+.(+0(+:*(&*>+
W#"$.($%N*(/&%,,*)(1:%,8*.(+0(+:*#"(#,7*,+0"'(&*7*&.($0.+&'(-*1%6.*(
+:*'(%"*(*K/*1+#,8(*#+:*"(>%.+*"(0"(.&09*"(.%&*.
W#"$(+:%+(#.(*K/*1+#,8(#+.(.%&*.(+0()06-&*L(9#&&(N**/($0"*(#,7*,+0"'(#,(
.+01N
W#"$(+:%+(#.(*K/*1+#,8(.&09*"(.%&*.(9#&&(/&%,(0,("*)61#,8(#,7*,+0"'
Planned$Inventory
I6.#,*..(#,7*.+$*,+(#.(-%.*)(0,(*K/*1+*)("*+6",.(2%))#+#0,.(+0(
/"0>#+5
JK/*1+*)("%+*(0>("*+6",(0,(1%/#+%&(#,7*.+$*,+()*/*,).(0,(+:*(>#"$X.(
*K/*1+%+#0,.(0>(>6+6"*(.%&*.L(>6+6"*(0/*"%+#,8(10.+.L(%,)(>6+6"*(
/"0>#+%-#&#+'(0>(+:*(/"0)61+(+:%+(+:*(1%/#+%&(:*&/.(+0(/"0)61*
F0"*(0/+#$#.+#1( %-06+(>6+6"*(.%&*.E10.+.E/"0>#+.L(+:*(#,7*.+$*,+(
)*$%,)(16"7*(9#&&(.:#>+(+0(+:*("#8:+U(%(/*..#$#.+#1(06+&00N( 9#&&(.:#>+(#+(
+0(+:*(&*>+
Expectations
4,7*.+$*,+(.1:*)6&*(>&61+6%+*.(
D:*(.9#,8.(#,(#,7*.+$*,+( #,("*%&(+*"$.(%"*(8"*%+*"(+:%,(+:*(.9#,8.(#,(
"*%&(M3!
Variability$of$Expectations
Durability
Irregularity$of$Innovation
Variability$of$Profits
Fluctuations$of$Investment
T(1:%,8*(#,(./*,)#,8@.%'L(#,7*.+$*,+(@1:%,8*.(+:*(06+/6+(%,)(
#,10$*( -'($0"*(+:%,(+:*(#,#+#%&( 1:%,8*(#,(#,7*.+$*,+(./*,)#,8
G:%,8*.(#,(10,.6$/+#0,(26,"*&%+*)(+0(1:%,8*.(#,(
#,10$*5L( ,*+(*K/0"+.L(%,)(807*",$*,+(/6"1:%.*.(%&.0(
&*%)(+0( +:*($6&+#/&#*"( *>>*1+
D:*(initial'change'in'spending #.(6.6%&&'(%..01#%+*)(9#+:(
#,7*.+$*,+(./*,)#,8(-*1%6.*(0>(#,7*.+$*,+X.(70&%+#&#+'
Y5
D:*(#,#+#%&( 1:%,8*(#,(./*,)#,8(%..01#%+*)(9#+:( #,7*.+$*,+(
./*,)#,8("*.6&+.(>"0$(%(1:%,8*(#,(+:*("*%&(#,+*"*.+("%+*E%,)(
0"(.:#>+(0>(+:*(#,7*.+$*,+()*$%,)(16"7*
Z5
4$/&#1#+( #,(+:*(/"*1*)#,8(/0#,+(#.( +:%+(+:*($6&+#/&#*"( 90"N.(
#,(-0+:()#"*1+#0,.P( T,(#,1"*%.*(#,(#,#+#%&( ./*,)#,8(9#&&(
1"*%+*(%($6&+#/&*(#,1"*%.*(#,(M3!U(%()*1"*%.*(#,(./*,)#,8(
9#&&( 1"*%+*(%(&%"8*"()*1"*%.*(#,(M3!
[5
Multiplier'='change'in'real'GDP/initial'change'in'spending
D:*(multiplier )*+*"$#,*.(:09($61:(&%"8*"(+:*(1:%,8*(9#&&(-*U(#+(#.(
+:*("%+#0(0>(%(1:%,8*(M3!(+0(+:*(#,#+#%&( 1:%,8*(#,(./*,)#,8
10.5$ The$Multiplier$Effect
Multiplier'='1/1'-MPC
MPC'+'MPS'='1
Multiplier'='1/MPS
D:*(F!G(%,)(+:*($6&+#/&#*"( %"*()#"*1+&'("*&%+*)L(%,)(+:*(F!A(%,)(+:*(
$6&+#/&#*"(%"*(#,7*".*&'("*&%+*)
T(&%"8*(F!G(2.$%&&(F!A5($*%,.(+:%+(.611**)#,8("06,).(0>(
10,.6$/+#0,(./*,)#,8(%"*()#$#,#.:#,8(.&09&'U(16$6&%+*(+0(%(&%"8*(
1:%,8*(#,(#,10$*
The$Multiplier$and$the$Marginal$Propensities
T1+6%&($6&+#/&#*"(#.(&09*"(+:%,(+:*($0)*&(%..6$*.
G0,.6$*".(-6'(#$/0"+*)(/"0)61+.
S06.*:0&).(/%'(#,10$*(+%K*.
4,>&%+#0,
F6&+#/&#*"($%'(-*(1&0.*(+0(Q*"0
How$Large$is$the$Actual$Multiplier$Effect?
G:%/+*"(Y\=(I%.#1(F%1"0*10,0$#1(?*&%+#0,.:#/.
Friday,*March*4,*2016 2:39*PM
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10.1$ The$Income-Consumption$and$Income-Saving$
Relationships
Saving'(S)'='Disposable'Income'(DI)'- Consumption'(C)
!"#$%"#&'()*+*"$#,*)(-'()#./0.%-&*(#,10$*(2345
10,.6$/+#0,("#.*.(%.(#,10$*(#,1"*%.*.
.%7#,8(#.(,*8%+#7*(2)#..%7#,8(0116".5(9:*,(+:*(10,.6$/+#0,(
.1:*)6&*(#.(%-07*(+:*(;<()*8"**(&#,*
.%7#,8(#.(/0.#+#7*(9:*,(+:*(10,.6$/+#0,( .1:*)6&*(#.(-*&09(;<(
)*8"**(&#,*
3#"*1+("*&%+#0,.=
Consumption$and$Saving
2#,(+:*(%88"*8%+*5(:06.*:0&).(#,1"*%.*(+:*#"(./*,)#,8(%.(+:*#"(
)#./0.%-&*(#,10$*("#.*.(%,)(./*,)(%(&%"8*"(/"0/0"+#0,(0>(%(
.$%&&*"()#./0.%-&*(#,10$*(+:%,(%(&%"8*"()#./0.%-&*(#,10$*
?*>&*1+.(+:*()#"*1+(10,.6$/+#0,@)#./0.%-&*( #,10$*("*&%+#0,.:#/
Consumption$Schedule$(C)
A%7#,8(*B6%&.()#./0.%-&*(#,10$*(&*..(10,.6$/+#0,((S#=#DI#-C)
C,&'(,**)(+0( .6-+"%1+(10,.6$/+#0,( >"0$()#./0.%-&*(#,10$*(+0( >#,)(
+:*(%$06,+(.%7*)(%+(*%1:(34
Saving$Schedule$(S)
APC'='consumption/income
D:*(>"%1+#0,E/*"1*,+%8*(0>(+0+%&( #,10$*(+:%+(#.(10,.6$*)(#.(+:*(
Average'Propensity'to'Consume'(APC)
APS'='saving/income
D:*(>"%1+#0,(0>(+0+%&( #,10$*(+:%+(#.(.%7*)(#.(+:*(Average'Propensity'
to'Save'(APS)
F!G(#.(+:*(,6$*"#1%&(7%&6*(0>(+:*(.&0/(0.(+:*(10,.6$/+#0,(
.1:*)6&*
MPC'='change'in'consumption/change'in'income
D:*(/"0/0"+#0,E>"%1+#0,( 0>(%,'(1:%,8*(#,(#,10$*(10,.6$*)(#.(1%&&*)(
Marginal'Propensity'to'Consume'(MPC),'with#marginal#meaning#
extra#or#a#change#in
F!A(#.(+:*(,6$*"#1%&(7%&6*(0>(+:*(.&0/*(0>(+:*(.%7#,8(.1:*)6&*
MPS'='change'in'saving/change'in'income
Average$ and$Marginal$Propensities
Wealth'effect .:#>+.(+:*(10,.6$/+#0,( .1:*)6&*(6/9%")(%,)(+:*(
.%7#,8(.1:*)6&*()09,9%")
H*%&+:
I0""09#,8
JK/*1+%+#0,.
?*%&(4,+*"*.+(?%+*.
10.2$ Non-Income$Determinants$of$Consumption$and$
Saving
Switching'to'Real'GDP @9:*,()*7*&0/#,8($%1"0*10,0$#1( $0)*&.L(
*10,0$#.+.(1:%,8*(+:*#"(>016.(>"0$(+:*("*&%+#0,.:#/(-*+9**,(
10,.6$/+#0,(2%,)(.%7#,85(%,)()#./0.%-&*(#,10$*(+0(+:*("*&%+#0,.:#/(
-*+9**,(10,.6$/+#0,( 2%,)(.%7#,85(%,)("*%&()0$*.+#1(06+/6+(2"*%&(
M3!5(@.#,1*(+:*'(9%,+(+0(N,09(:09(1:%,8*.(#,(10,.6$/+#0,(%,)(
.%7#,8(%>>*1+(+:*(06+/6+(0>(+:*(*,+#"*(*10,0$'L(,0+(O6.+()#./0.%-&*(
#,10$*
D%K*.(%"*(/%#)(/%"+&'(%+(+:*(*K/*,.*(0>(10,.6$/+#0,( %,)(/%"+&'(
%+(+:*(*K/*,.*(0>(.%7#,8
.1:*)6&*.(#,(+:*(.%$*()#"*1+#0,
A+%-#&#+'($%'(-*(-*1%6.*(1:%,8*.(#,(+:*(,0,@#,10$*(
)*+*"$#,%,+.(>"*B6*,+&'(90"N(#,(0//0.#+*()#"*1+#0,.(%,)(
+:*"*>0"*($%'(1%,1*&(*%1:(0+:*"(06+
Stability @+:*(10,.6$/+#0,E.%7#,8( .1:*)6&*(%"*("*&%+#7*&'(.+%-&*(
6,&*..(%&+*"*)(-'($%O0"(+%K(#,1"*%.*.(0"()*1"*%.*.
Other$Important$Considerations
4,7*.+$*,+.(10,.#.+.(0>(*K/*,)#+6"*.(0,(,*9(/&%,+.L(1%/#+%&(
*B6#/$*,+L($%1:#,*"'L(%,)(#,7*,+0"#*.
D:*($%"8#,%&(-*,*>#+(>"0$(#,7*.+$*,+(#.(+:*(*K/*1+*)("%+*(0>(
"*+6",(-6.#,*..(:0/*(+0("*%&#Q*
D:*($%"8#,%&(10.+( #.(+:*(#,+*"*.+("%+*(+:%+($6.+(-*(/%#)(>0"(
-0""09#,8(>6,).
I6.#,*..*.(9#&&(#,7*.+(#,(%&&(/"0O*1+.(>0"(9:#1:(+:*(*K/*1+*)("%+*(
0>("*+6",(*K1**).(+:*(#,+*"*.+("%+*
JK/*1+*)("*+6",.(2/"0>#+.5(%,)(+:*(#,+*"*.+("%+*(+:*"*>0"*(%"*(+:*(
+90( -%.#1()*+*"$#,%,+.(0>(#,7*.+$*,+(./*,)#,8
4,7*.+$*,+()*1#.#0,( #.(%($%"8#,%&@-*,*>#+@$%"8#,%&@10.+( )*1#.#0,=
10.3$ The$Interest$Rate$-Investment$Relationship
JK/*1+*)(?%+*(0>(?*+6",L("
Expected$Rate$of$Return
4,+*"*.+(@+:*(>#,%,1#%&(10.+(0>(-0""09#,8( +:*(money 1%/#+%&("*B6#"*)(+0(
/6"1:%.*(+:*(real 1%/#+%&
Interest'Cost'='interest'rate'(i)'x'amount'borrowed
i'='nominal'rate'-rate'of'inflation
4,+*"*.+(10.+(R(#,+*"*.+*)(2#5(K(%$06,+(-0""09*)
The$Real$Interest$Rate
A:09.(+:*(%$06,+(0>(#,7*.+$*,+(>0"+:10$#,8(%+(*%1:("*%&(
#,+*"*.+("%+*
D:*(#,7*".*(2)09,9%")@.&0//#,85("*&%+#0,.:#/(-*+9**,(+:*(#,+*"*.+(
"%+*(2/"#1*5(%,)()0&&%"(B6%,+#+'(0>(#,7*.+$*,+()*$%,)*)(10,>0"$.(
9#+:( +:*(&%9(0>()*$%,)
Investment$Demand$Curve
10.4$ Shifts$the$Investment$Demand$Curve
D:*(#,#+#%&( 10.+.(0>(1%/#+%&(800).L( %,)(+:*(*.+#$%+*)(10.+.(0>(0/*"%+#,8(
%,)($%#,+%#,#,8(+:0.*(800).L(%>>*1+(+:*(*K/*1+*)("%+*(0>("*+6",(0,(
#,7*.+$*,+
H:*,(10.+(>%&&.L(+:*(*K/*1+*)("%+*(0>("*+6",(>"0$(/"0./*1+#7*(
#,7*.+$*,+(/"0O*1+.("#.*.L(.:#>+#,8(+:*(#,7*.+$*,+()*$%,)(16"7*(+0(
+:*("#8:+
S#8:*"(10.+.L(.:#>+(+:*(16"7*(+0(+:*(&*>+
Acquisition,$Maintenance,$and$Operating$Costs
210,.#)*"#,8(807*",$*,+5(>#"$.(&00N(+0(*K/*1+*)("*+6",. after#taxes
#,($%N#,8(+:*#"(#,7*.+$*,+()*1#.#0,.
T,(#,1"*%.*(#,(-6.#,*..(+%K*.(&09*".(+:*(*K/*1+*)(/"0>#+%-#&#+'(+0(
#,7*.+$*,+.(%,)(.:#>+.(+:*(#,7*.+$*,+()*$%,)(16"7*(+0(+:*(&*>+U( %(
"*)61+#0,(0>(-6.#,*..(+%K*.(.:#>+(#+(+0(+:*("#8:+
Business$ Taxes
D*1:,0&08#1%&( /"08"*..(@+:*()*7*&0/$*,+( 0>(,*9(/"0)61+.L(
#$/"07*$*,+.(#,(*K#.+#,8(/"0)61+.L(%,)(+:*(1"*%+#0,(0>(,*9(
$%1:#,*"'(%,)(+:*(/"0)61+#0,( /"01*..*.(@.#$6&%+*.(#,7*.+$*,+
D:*()*7*&0/$*,+(0>(%($0"*(*>>#1#*,+($%1:#,*L(&09*".(/"0)61+#0,( 10.+.(
0"(#$/"07*.(/"0)61+(B6%&#+'(%,)(#,1"*%.*.(+:*(*K/*1+*)("%+*(0>("*+6",(
>"0$(#,7*.+#,8(#,(+:*($%1:#,*
!"0>#+%-&*(,*9(/"0)61+.(#,)61*(%(>&6""'(0>(#,7*.+$*,+(%.(>#"$.(+00&(6/(
>0"(*K/%,)*)(/"0)61+#0,
T("%/#)("%+*(0>(+*1:,0&08#1%&(/"08"*..(.:#>+.(+:*(#,7*.+$*,+()*$%,)(
16"7*(+0(+:*("#8:+
Technological$Change
V*..(#,7*.+$*,+(#.(>0"+:10$#,8(%+(*%1:("*%&(#,+*"*.+("%+*U(+:*(
#,7*.+$*,+()*$%,)(16"7*(.:#>+.(&*>+9%")
H:*,(+:*(*10,0$'(#.(07*".+01N(9#+:(+:*(/"0)61+#0,(>%1#&#+#*.(%,)(
9:*,(>#"$.(:%7*(*K1*..#7*(#,7*,+0"#*.(0>(>#,#.:*)(800).L(+:*(*K/*1+*)(
"%+*(0>("*+6",(0,(,*9(#,7*.+$*,+()*1&#,*.
H:*,(%,(*10,0$'(#.(6,)*".+01N*)(9#+:(/"0)61+#0,(>%1#&#+#*.L( %,)(
9:*,(>#"$.(%"*(.*&&#,8(+:*#"(06+/6+(%.(B6#1N&'( %.(+:*'(1%,(/"0)61*(#+L(
+:*(*K/*1+*)("%+*(0>("*+6",(0,(,*9(#,7*.+$*,+(#,1"*%.*.(%,)(+:*(
#,7*.+$*,+()*$%,)(16"7*(.:#>+.("#8:+(9%")
Stock$of$Capital$Goods$on$Hand
4,7*.+$*,+()*$%,)(16"7*L()*%&.(9#+:(/&%,,*)(#,7*.+$*,+(0,&'L(%,)(#.(
%>>*1+*)(0,&'(-'(/&%,,*)(1:%,8*.(+:%+(>#"$.()*.#"*(+0($%N*(+0(+:*#"(
#,7*,+0"'(&*7*&.
4>(>#"$.(/&%,(+0(#,1"*%.*(+:*#"(#,7*,+0"#*.L(+:*(#,7*.+$*,+()*$%,)(
16"7*(.:#>+.(+0(+:*("#8:+
4>(>#"$.(/&%,(+0()*1"*%.*(+:*#"(#,7*,+0"#*.L(+:*(#,7*.+$*,+()*$%,)(
16"7*(.:#>+.(+0(+:*(&*>+
W#"$.($%N*(/&%,,*)(1:%,8*.(+0(+:*#"(#,7*,+0"'(&*7*&.($0.+&'(-*1%6.*(
+:*'(%"*(*K/*1+#,8(*#+:*"(>%.+*"(0"(.&09*"(.%&*.
W#"$(+:%+(#.(*K/*1+#,8(#+.(.%&*.(+0()06-&*L(9#&&(N**/($0"*(#,7*,+0"'(#,(
.+01N
W#"$(+:%+(#.(*K/*1+#,8(.&09*"(.%&*.(9#&&(/&%,(0,("*)61#,8(#,7*,+0"'
Planned$Inventory
I6.#,*..(#,7*.+$*,+(#.(-%.*)(0,(*K/*1+*)("*+6",.(2%))#+#0,.(+0(
/"0>#+5
JK/*1+*)("%+*(0>("*+6",(0,(1%/#+%&(#,7*.+$*,+()*/*,).(0,(+:*(>#"$X.(
*K/*1+%+#0,.(0>(>6+6"*(.%&*.L(>6+6"*(0/*"%+#,8(10.+.L(%,)(>6+6"*(
/"0>#+%-#&#+'(0>(+:*(/"0)61+(+:%+(+:*(1%/#+%&(:*&/.(+0(/"0)61*
F0"*(0/+#$#.+#1( %-06+(>6+6"*(.%&*.E10.+.E/"0>#+.L(+:*(#,7*.+$*,+(
)*$%,)(16"7*(9#&&(.:#>+(+0(+:*("#8:+U(%(/*..#$#.+#1(06+&00N( 9#&&(.:#>+(#+(
+0(+:*(&*>+
Expectations
4,7*.+$*,+(.1:*)6&*(>&61+6%+*.(
D:*(.9#,8.(#,(#,7*.+$*,+( #,("*%&(+*"$.(%"*(8"*%+*"(+:%,(+:*(.9#,8.(#,(
"*%&(M3!
Variability$of$Expectations
Durability
Irregularity$of$Innovation
Variability$of$Profits
Fluctuations$of$Investment
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10.5$ The$Multiplier$Effect
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The$Multiplier$and$the$Marginal$Propensities
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Friday,*March*4,*2016 2:39*PM
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