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Ch. 2 : National Income Determination (I)

Ch. 2 : National Income Determination (I). (Simple Keynesian Model). The national output or income of an economy is at equilibrium when Aggregate Demand (AD) = Aggregate Supply (AS) [which is the amount of national output (Y) produced in the economy. ]. At equilibrium, Y=AE.

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Ch. 2 : National Income Determination (I)

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  1. Ch. 2 : National Income Determination (I) (Simple Keynesian Model)

  2. The national output or income of an economy is at equilibrium when Aggregate Demand (AD) = Aggregate Supply (AS) [which is the amount of national output (Y) produced in the economy. ]

  3. At equilibrium, Y=AE

  4. Y = output = income

  5. AE = aggregate expenditure AE = C + I (planned consumption expenditure + planned investment expenditure)

  6. Consumption Function • C = Ca + cY • Ca = autonomous consumption • cY = induced consumption • c = marginal propensity to consume

  7. C C=Ca + cY slope = 0.75 20 Y

  8. Example • C = 20 + 0.75Y

  9. C C=Ca + cY slope = c Ca Y

  10. Investment Function • I = Ia • the investment function is assumed to be autonomous

  11. Example • I = 20

  12. I I=Ia Y

  13. I I=20 20 Y

  14. Equilibrium Condition Y = AE = C + I

  15. AE 450 Y

  16. AE AE=C+I Y Y*

  17. AE AE=C+I+G+(X-M) Y Y*

  18. $ S+T+M I+G+X Y Y*

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