Chapter 11: Intermediate Macro

University:
McMaster University
Course:
ECON 1BA3 | Introductory Macroeconomics for Economics Students
Academic year:

2023
Views:

148

Pages:

7
Author:

Usman Tahir

Chapter 11: Intermediate Macro IS stands for investment and Saving And the IS Curve plots different combinations of interest rate and level of income at which the market for goods and services is in equilibrium Steps to Drive the IS Curve Keynesian Cross: Interaction between I and Y Investment Function: interaction between I and r Combining the above two interactions The Keynesian Cross How national income is determined by aggregate expenditures, in the short run. Distinction between Actual Expenditures (AE) and Planned Expenditures (PE) Actual expenditures (AE): firms/households/government actually spend. Planned expenditure (PE): firms/households/government would like to spend on goods and services. What is the Difference between actual & planned expenditures? For a closed economy PE = C + I +G = planned expenditure Y = real GDP = actual expenditure Where C = planned consumption expenditure C = a + c(Y-T) I = planned investment expenditures G = planned govt expenditures Graphing Planned Expenditure The Equilibrium Level of Income An Increase in Planned investment Expenditures Planned Investment Expenditure Multiplier Definition: the increase in income resulting from a one-unit increase in I If MPC = 0.6 Government Purchases Multiplier Definition: the increase in income resulting from a $1 increase in G Why the multiplier is greater Than I REVIEW THIS AND MAKE NOTES Step 2: Investment Function The level of planned investment as a function of real interest rate: I = I (r) The Equation of the IS Curve: Any factor that causes PE curve to shift up will cause IS curve to shift right