ECON 102 Lecture Notes - Lecture 12: Permanent Income Hypothesis, Loanable Funds, Keynesian Cross

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

Document Summary

Want to explain the ups and downs of y in the short run. Solow growth model: full employment/ natural rate of unemployment model: whe(cid:374) the e(cid:272)o(cid:374)o(cid:373)y"s resour(cid:272)es are used at their (cid:374)atural rates, the e(cid:272)o(cid:374)o(cid:373)y is on its long-run growth path. Yd disposable income money you can spend (not taken by government: that money that he spent get transferred into so(cid:373)eo(cid:374)e else"s i(cid:374)(cid:272)o(cid:373)e a(cid:374)d he saves some and spends some, etc. Yd = c + s yd = c + s . Y d: the (spending) multiplier: the amount that y increases or decreases as a proportion of the amount that autonomous spending increases or decreases. The consumption function: a linear relationship between aggregate consumption and aggregate income, c = a + mpc*yd. Aggregate consumption equals the sum of autonomous consumption and disposable income times the marginal propensity to consume. Mpc: slope: autonomous consumption: consumption that occurs regardless of income.