Ch 27  Keynesian Macro Model (I)
Sunday, February 05, 2012
1:00 AM
Keynesian Model assumptions:
Expenditure and GDP
Induced Expenditure 
Consumption 
Autonomous Expenditure 
Investment 
Disposable income (spent on consumption or savings) 

Y 
Aggregate income 
T 
Net taxes 
C 
Consumption 
S 
Savings 
Consumption function
C 
Consumption 
b (aka MPC) 
Marginal propensity to consume 
Y 
Income (assuming no taxes) 
MPC 
Ratio of change in consumption and change disposable income 
MPS 
Marginal propensity to save 
APC 
Average
propensity to consume 
APS 
Average propensity to save 
Move along the consumption function
Shifts consumption function:
Planned Investment Spending
Determinants of aggregate investment expenditure:
Real interest rate 
Opportunity cost
of using money for investment in fixed goods 
Changes in Sales 
Directly affect stock of inventories 
Business confidence 
Direct affect 
Aggregate Expenditure Function
a 
Autonomous expenditure (when disposable income = 0) 
b 
MPC 
Equilibrium expenditure 
Shifts the AE function:
Changes the slope of AE:
Multiplier
Multiplier 
Amount which a change in autonomous expenditure is magnified to determine the change in equilibrium expenditure and real GDP. 
Created by Tim Pei with Microsoft OneNote 2010
One place for all your notes and information