Simple Keynesian Model. National Income Determination Three-Sector National Income Model. Outline. Three-Sector Model Tax Function T = f (Y) Consumption Function C = f (Yd) Government Expenditure Function G=f(Y) Aggregate Expenditure Function E = f(Y) - PowerPoint PPT Presentation
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Simple Keynesian Model
National Income Determination
Three-Sector National Income Model
E = C + I+ G
Planned Y = Planned E
C = f(Yd)
C= C’
C= cYd
C= C’ + cYd
T = T’
Y-intercept=T’
slope of tangent=0
T = tY
Y-intercept=0
slope of tangent=t
T = T’ +tY
Y-intercept=T’
slope of tangent=t
C = C’
C = c(Y - T)
C = C’ + c(Y - T)
C = C’ + c(Y - T’) C = C’- cT’ + cY
slope of tangent = c
C = C’ + c(Y - tY) C = C’ + (c - ct)Y
slope of tangent = c - ct
C = C’+c[Y-(T’+tY)]C = C’ - cT’ + (c - ct) Y
slope of tangent = c - ct
Y-intercept = C’ - cT’
slope of tangent = c = MPC
slope of ray APC when Y
Y-intercept = C’
slope of tangent = c - ct = MPC (1-t)
slope of ray APC when Y
Y-intercept = C’ -cT’
slope of tangent = c - ct = MPC (1-t)
slope of ray APC when Y
y-intercept C’ - cT’ C shift upward
c(1-t) C flatter
c(1-t) C steeper
y-intercept C’ - cT’ C shift downward
Y-intercept = G’
slope of tangent = 0
slope of ray when Y
givenC= C’ + cYd
T= T’ + tY
I= I’
G= G’
given E’ = C’ - cT’ + I’ + G’
C
2-Sector
C = C’ + cYd = C’ + cY
Slope of tangent = c = MPC =C/Yd
Slope of tangent = c (1-t) = (1-t)*MPC MPC
C = C’ - cT’ + c(1-t)Y
3-Sector
C’
C’ -cT’
Y
I, G, C, E, Y
Y=E
Y
Planned Y = Planned E
E’ = C’ - cT’ + I’ + G’
k E =
1
1 - c + ct
1
1 - c + ct
E’ = C’ - cT’ + I’ + G’
k E =
1
1 - c - i + ct
1
1 - c - i + ct
E’ = C’ - cT’ + I’ + G’
k E =
1
1 - c - i
1
1 - c - i
I, G, C, E, Y
Y=E
Y
I, E, Y
I’
E’ = I’
I’
Y
Ye = k E E’
G, E, Y
G’
Y
C, E, Y
C’
Y
C, E, Y
T’
C by -cT’
Y
I, E, Y
i
Y
1
1 - c + ct
1
1 - c + ct - i
1
1 - c - i
-c
1 - c + ct
-c
1 - c + ct + i
-c
1 - c - i
1
1-c
-c
1-c
Y-line
G’ E’ E Y
E = E” + (c-ct) Y
E = E’ + (c -ct) Y
G’
Y= k E * E’
Recessionary Gap
Ye
Yf
Y-line
T’ E’ by -c T’ E Y
E = E” + (c-ct) Y
E = E’ + (c -ct) Y
-cT’
Y= k E * E’ = k T *T’
Recessionary Gap
Ye
Yf
Y = E
G’ E’ E Y
E = E’ + (c-ct) Y
E = E” + (c-ct) Y
G’
Y= k E * E’
Nominal Y>Yf Inflationary Gap
Yf
Ye
Y = E
T’ E’ by -c T’ E Y
E = E’ + (c-ct) Y
E = E” + (c-ct) Y
-cT’
Y= k E * E’ = k T *T’
Nominal Y>Yf Inflationary Gap
Yf
Ye
tax cut has a much shorter executive lag