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ECON 1100 (224)
Chapter 8

Chapter 8 Intro Macroeconomics Notes

2 Pages
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Department
Economics
Course Code
ECON 1100
Professor
Bram Cadsby

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Chapter 8 Macro SpendingOutput in the Short RunThe Keynesian Models Crucial Assumption Firms meet demand at preset pricesKEY ASSUMPTION In the short run firms meet the demand for their products at preset prices Firms dont respond to every change in the demand for their products by changing their prices Instead they typically set a price for some periodthen meet the demand produce as much as wantedthat priceMenu Costs The costs of changing prices constantly The decision to change prices reflects costbenefit comparison prices should be changed if the benefit of doing sothe fact that sales will be brought more nearly into line with the firms normal production capacityoutweighs the menu costs associated w making the change This model so far ignores the fact that prices will eventually adjustPlanned Aggregate ExpenditurePlanned Aggregate Expenditure PAE total planned spending on final goodsservices4 components of total or aggregate spending are Consumption Private Sector Investment Government PurchasesNet Exports Planned Spending Vs Actual SpendingPlanned spending CAN differ from actual spending The GDP accounts are based on assumption that the firm buys its unsold inventory from itself Then counted as part of the firms independent spendingPlanned Aggregate Expenditure PAECIpplanned investmentGNXHey Big SpenderConsumer SpendingThe Economy The largest component of planned aggregate expenditure is consumption spending CImportant determinant of the amount people plan to consume is their aftertax or personal disposable income
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