Since we are more concerned with two sector model in our course‚ we will discuss about consumption and investment. In a two sector model‚ a simple but an imaginary assumption of no government and no foreign trade is made. Here Yd =C+S or Yd =AD (aggregate demand) This also implies that C+S=C+I Consumption Introducing you with: (Think yourself in advance) What is consumption? What is consumption function? What are the determinants of consumption? What is MPC? What is APC? Consumption
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Problem Set 1 Complete all questions listed below. Clearly label your answers. 1. The receipts and year of release of the five movies with the largest nominal box office revenues‚ along with the CPI data of each year are presented below. Assuming that the receipts for each of the movies were derived during their year of release‚ convert the receipts for each to real dollars for the year 2010 (2010 CPI 230.1). Put the movies in order from largest to smallest real box office receipts and show
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save? b. Write out the equation that indicates how aggregate demand (Z) is a function of income (Y) and the remaining autonomous expenditures. What will be the level of aggregate demand if Y = 0? What does this level of demand represent? Furthermore‚ given you equation‚ what will happen to the level of aggregate demand (Z) as Y increases by $1? What does this number represent? c. Based on your answer in part (b)‚ calculate the level of demand (Z) for the following levels of income: Y = 1600‚
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John Maynard Keynes Economic theory: Keynesian economics is a theory of total spending in the economy (called aggregate demand) and its effects on output inflation. 1. A Keynesian believes that aggregate demand is influenced by a host of economic decisions—both public and private—and sometimes behaves erratically. 2. According to Keynesian theory‚ changes in aggregate demand‚ whether anticipated or unanticipated‚ have their greatest short-run effect on real output and employment‚ not on
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suppose consumers of this economy are of 2 groups‚ half of them having C1 = 0.8 Y1 and the other half having C2 = 0.9 Y2. Find the aggregate consumption function if each group earns half of the aggregate income. Show your steps. QUESTIONS for REVISION 1. Why is the simple Keynesian model said to be "demand driven"? 2. Contrast the components of aggregate demand in a closed economy without Government to those of an open economy with Government. 3. What is a "behavioural" relationship? 4.
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Eсonomiс growth as a Maсroeсonomiсs aggregate. 1.1.The meaning of eсonomiс growth The first point is the definition of Eсonomiс growth. Eсonomiс growth is a term generally measured by the amount of produсtion in a сountry or region over a сertain period of time. While finanсial ministers may keep traсk of eсonomiс growth numbers every month‚ generally it is the quarterly and annual numbers that attraсt the most attention. Most сonsider eсonomiс growth to be one of the surest signs of a сountry’s
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Answers to End-of-Chapter Questions in Chapter 17 1. An economy is currently in equilibrium. The following figures refer to elements in its national income accounts. | |£ billions | |Consumption (total) |60 | |Investment |5 | |Government expenditure |8 | |Imports |10 | |Exports |7 |
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MULTIPLIER AND ACCELERATOR THEORY The Keynesians‚ have offered a demand side explanation of the business cycle. According to them‚ the fluctuations in output and employment in the country are caused by fluctuations in aggregate demand. The ups and downs in aggregate demand are caused by changes in the volume of investment. The volume of investment is directly related to the marginal efficiency of capital. The investment increases in response to higher marginal efficiency of capital and decreases
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1. Suppose during 2012 there is a sudden unanticipated burst of inflation. Consider the situations faced by the following individuals—who gains and who loses? a. A homeowner whose wages will keep pace with inflation during the year‚ but whose monthly mortgage payments will remain fixed. This person has gained. Nominal income is income that you receive in a given time period and it is measured in current dollars. Real income is nominal income adjusted for inflation and is the purchasing power
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questions. There is only one correct answer per question. 1. An inflationary gap exists when: A. aggregate demand exceeds output. B. actual output exceeds potential output. C. output exceeds aggregate demand. D. potential output exceeds actual output. 2. A recessionary gap exists when: A. aggregate demand exceeds output. B. actual output exceeds potential output. C. output exceeds aggregate demand. D. potential output exceeds actual output. 3. The paradox of thrift will not arise if: A. increases
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