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A snapshot of the summary - Macroeconomics Canadian Edition
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11 Income and Expenditure
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What are the
assumptions of the multiplier on consumer spending- Producers are willing to supply
output at a fixed price - interest rates is given
- no government
spending and no taxes exports andimports are zero
- Producers are willing to supply
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What do we mean for business and consumers spending an additional dollar when we say producers willing to supply
additional output at a fixed priceWhenconsumers orbusinesses buying investment goods decide to spend an additional dollar, it will translate into the production of an additionalvalue of goods and services withoutinflation , or a rise in theoverall price. -
What will happen to changes in aggregate expenditure as a result of the supply of
additional output being fixedAs a result, of the supply of additional output being fixed changes in aggregate expenditure translate into changes in aggregate output, as measured by real GDP. -
What is the reason that the total real
GDP islimited to a number even if income increases, why dont we spend all the money, why is theredecreasing returns to scale in spending when the is increase in income?- That is because at each stage of
expansion , asdisposable income rises so of the income getsleaked out because it is saved.
- That is because at each stage of
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How much of an addtional income dollar of disposable income is saves depends what? And what is that?The Marginal propensity to save MPS
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What leads to a rise in
consumer spending and a rise in realGDP (wealth effect)? An increase inasset prices makes owners feelricher therefore the spend more. -
What does self governing mean in the context of autonomous change in expenditure? And what is autonomous change in expenditure?
- it means that the rise in consumer spending is the cause of the rise in real GDP not that effect not the result of it.
- the initial rise in consumption occurs first and then it is followed by the rise in real GDP.
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What is the importance of
multiplier effect? what does the size of the multiplier depend on? And why? Formula?- we use it to determines how large each round of expansion is compared to the previous round, by applying the size of the
MPC todetermin that ratio - It is the ratio of the total change in real
GSP caused by an autonomous change in aggregate expenditure - the size of the
multiplier depends on the autonomous change in aggregate expenditure.
multiplier = change in Y/change in AE = 1/(1-MPC )
- Y is real GDP, AE
autonoumous expenditure.
- we use it to determines how large each round of expansion is compared to the previous round, by applying the size of the
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What determines how much saving occursThe higher the MPC the higher less disposable income leaks out into savings.
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In what situations do the formula for the multiplier change?When taxes and foreign trade is introduced.
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The following topics are covered in this summary
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consumer, consumption, spending
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income, function, changes
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investment, spending, planned
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higher, gdp, disposable
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gdp, expenditure, inventory
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change, expenditure, aggregate
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multiplier, imports, exports
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aggregate, demand, curve
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output, supply, aggregate
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aggregate, equilibrium, short
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policy, output, aggregate
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money, requirements, monetary
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rate, interest, term