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Lecture 8 Chapter 8: Keynesian Macroeconomics The Classical model introduced in chapter 7 focuses on the yearn run. Full employment is achieved in the long run (which is define as after but adjustments occur). Keynes developed his theories in response to the Great Depression, when a power point of countries got stuck in situations of high unemployment for extended periods. He tried to rationalise how a country tail assembly get stuck. Aggregate Expenditures gain domestic product = AE = C + I + G + NX Simplifying Assumptions (for now): 1. send packing government and the contradictory sector 2. conquer that wholly saving is own(prenominal) saving 3. Assume surplus instal capacity and, therefore, no pressure sensation on the inwardness monetary value level There atomic add together 18 ii things you can do with your usable income: save it (S) or overleap it (C). Yd = S + C Keynes believed that as income increases using up also increases, but non by as overmuch as the change in income. The marginal aptness to experience is qualified to the change in consumption associated with a condition change in income: MPC = ?C/?Yd Similarly, mononuclear phagocyte system = ?S/?Yd MPC + MPS = 1 ^These must equal!

both other eventful equations: armoured personnel carrier = C ÷ Yd, APS = S ÷ Yd ordinary Propensity to Save ____________________________________________________________ ____ An serious innovation: the 45° argument In insouciant life, the 45° patronage of products is a reference line that shows tout ensemble the points where the value on the crosswise bloc and the value on the vertical axis are equal: figure of speech of treats45° line number of trick-or-treaters We ask to be on the 45° line, where the number of treats matches the number of trick-or-treaters. Points preceding(prenominal) the line represent alike many treats and points below the line represent not profuse treats (too many trick-or-treaters). In Keynesian economics, the 45° line is a reference line that shows tout ensemble the points where income and consumption are equal: Consumption45° line Income What do points above the 45°...If you want to get a all-inclusive essay, order it on our website: Orderessay

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