ECON-002 Lecture Notes - Lecture 23: Fiscal Multiplier, Aggregate Demand
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5 Jun 2017
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I, g, and x are together referred to as autonomous spending (i. e. they don"t depend on y) Spending balance if y = c + i + g + x. C, i, g, and x are desired shares, not actual shares. Investment is particularly problematic, particularly when business investment is not desired. Ex: in a recession, firms have trouble selling goods, goods accumulate as inventory. Inventory counts as investment, but it is not desired investment. Graph of the spending balance model starts with the expenditure line. This line graphs (also referred to as expenditure line) plots desired spending as a function of y. In the example in class, professor rogers graphs a spending curve with the equation spending=460+0. 6y. Graphical hack: you can guess and check to find the point where spending=y (not efficient) Graphical method: draw a 45 degree line on the graph (line from the origin to the top right corner).
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i) | The aggregate demand curve shows
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