Econ 104 1st Edition Lecture 15 Outline of Last Lecture II RGDP Business Cycle III Loanable Funds Supply and Demand Outline of Current Lecture IV Aggregate Expenditure V Classic Theory and Keynesian Theory Current Lecture I II III IV Aggregate Expenditure AE and Output in the Short Run SR a AE C I G NX AD b Macroeconomic equilibrium occurs when AD Aggregate supply i AD RGDP Y 1 Y Total output production income Great Depression 1929 1938 a Real GDP fell 30 G Recession was 4 5 b Unemployment rose to 25 G Recession was 10 c Stock prices fell dramatically i HH wealth plummeted or disappeared d Businesses closed e Banks Failed Classical Theory By Adam Smith prior to the Great Depression a Primarily based on micro theory b Laissez Faire Economy would correct itself recessions are only temporary Keynesian Theory 1936 a The economoy is not self correcting b If total spending is inadequate the economy will not reach full employment on its own c Policy makers should step in to help restore full employment d John Maynard Keynes and A Theory of Consumption i Yd C S ii C a bYd C Function These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute iii Where 1 Yd Y T Tr disposable income T Taxes Tr transfers e g social security benefits 2 a intercept autonomous consumption 3 b slope 0 b 1 Marginal Propensity to Consume MPC a MPC Change in C Change in Yd 4 S saving what we do not consume out of Yd we save
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