ECON 102 Lecture 12: Econ 102 Lecture 12 Notes

• School: U of M
• Department: Economics
• Course: ECON 102
• Professor: Adam Stevenson

Document Summary

Model of short run fluctuations the keynesian model: to explain the short run wobbles around this trend. Recall that the solow growth model is a full employment (neoclassical) model. When the economy"s resources are used at their natural rates, the economy is on its long-run growth path. The multiplier effect: aggregate price level p is fixed, and producers are willing to increase quantity supplied at this fixed price. I buy a new house, a new car, a new wardrobe, etc. This money becomes someone else"s income: they save some and spend some (yd = c + s) The portion they spend becomes yet someone else"s income: that person saves some, spends some. A third round of income, spending & saving. Effectively identical to the chapter 9 savings rate s. Yd = c + s. Mps + mpc = 1: suppose that everyone in the economy has an mpc of 0. 75.