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Chapter 27

Chapter 27 - Keynesian Expenditure Multiplier.docx

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York University
ECON 1010
Steven Edwards

Chapter 27 – EXPENTITURE KENYSIAN RULE For economy: price level is fixed, aggregate demand determines real GDP Aggregate demand expenditure is equal to the sum of the planned levels of consumption expenditure, investment, gov expenditure, exports minus imports. Two way link between agg expenditure and real GDP. An increase in real GDP increase aggregate expenditure An increase in aggregate expenditure increases real GDP Consumption expenditure factors: Disposable income, Real interest rate, Wealth, Expected future income Consumption function is the relationship between consumption expenditure and disposable income. Saving function is the relationship between saving and disposable income. Marginal propensity to consumer is the fraction of a change in disposable income that is spent on consumption. MPC = CHANGE IN C (CONSUMPTION EX.) / CHANGE IN YD (DISPOSIBLE INCOME) Marginal propensity to save is the fraction of change
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