ECON 111 Lecture Notes - Lecture 3: Move, Real Interest Rate, Fiscal Multiplier
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* initialspending (c+ig+g+xn) x keynesian spending multiplier = gdp. 0 because people keep saving a small % called leakage. Spending multiplier = 1 / mps = 1 / (1 - mpc) Aps = t saving / t income (useless) Apc = t spending / t income (useless) Aggregate demand (ad): all the demand for all the goods and services by all the buyers (c, ig, g, xn) Why is aggregate demand downward sloping? (not because income & substitution effects: real-balances effect: real value of peoples savings accounts goes down when in ation happens. Pl(cid:15482)(cid:738)(real value of $)(cid:15482)(cid:738)c(cid:15482)(cid:738)gdp: interest rate effect: Pl (relative to other nations)(cid:15482)(cid:739)(real value of $)(cid:15482)(cid:739)xn(cid:15482)(cid:739)gdp. Pl (relative to other nations)(cid:15482)(cid:738)(real value of $)(cid:15482)(cid:738)xn(cid:15482)(cid:738)gdp. Determinants of ad (c, ig, g, xn) - shifts the aggregate demand curve. Ad= f(c + ig + g + xn) ***interest rates: i for nominal, r for real [cost]
