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UMass Amherst ECON 104 - GDP, Equations, and Functions

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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. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Lecture!11!Outline(of(Last(Lecture(!I. Business!Cycle!a. The!Trough!II. Keynes!a. Say’s!Law!and!Classical!Economists!b. Keynes’!Assumptions!Outline(of(Current(Lecture((I. GDP!=!C!+!I!+!G!a. Consumption!(C)!!II. Equations!a. Average!Propensity!to!Consume!(APC)!b. Marginal!Propensity!to!Consume!(MPC)!c. Marginal!Propensity!to!Save!(MPS)!III. Consumption!Function!IV. Savings!Function!V. Investment!Decision!VI. Graphical!Representations!Current(Lecture!1. GDP!+!C!+!I!+!G(! Consumption!(C)!is!impacted!by!price!and!income!(! YD!=!C!+!S:!Disposable!Income!=!Consumption!+!Savings!(2. Equatio ns:(! Average!Propensity!to!Consume!(APC)(i. APC!=!C!/!YD!(! Marginal!Propensity!to!Consume!(MPC)(i. MPC!=!^!C!/!^!YD!![^!Represen ts!th e !symbol!for!Chan g e,!w h ich !is!n or m ally !a!T rian g le] (! Marginal!Propensity!to!Save!(MPS)(i. MPC!+!MPS!=!1!so,!1!–!MPC!=!MPS(3. Consumption!Function(! C!=!f!(YD)!or!C!=!f!(Y)(i. Consumption!is!a!function!of!disposable!income(! MPC!=!b(i. C!=!b!(Y)(! Autonomous!Expenditure!=!a![The!com p on e nt s!of !an !eco n o m y's!a gg re ga te!e xp e nd itu re !that!are!not!impacted !by!tha t!sam e!eco no m y's!real!leve l!of!incom e ]!(i. C!=!a!+b!(Y)!(4. Savings!Function(! S!=!\a!+!(1\b)!*!(Y)(5. Investment!Decision!(!!((((((ECON(104(((11th(Edition(! !! 1.!Expectation!of!future!income(! 2.!Interest!Rate!(• For!the!Investment!Function:!Producers!in!the!economy!must!decide!how!much!income!to!spend!on!new!investment.(6. Graphical!Representations(! ((• A!basic!model!of!the!Consumption!Function!a. Dissaving:!Spending!an!amount!of!money!greater!than!available!income.!b. Saving:!the!amount!left!over!when!the !cost!of!a!p erson 's!con sum e r!expenditure!is!subtracted!from!the!amount!of!disposable!income!that!he!or!she!earns!in!a!given!period!of!time.!! ! • Another!basic!model!of!the!Consumption!Function!a. C:!Consumption!Function!b. I:!Investme n t!F u n c tio n !c. AE:!Aggregate!Ex p en d it u re !!((!


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UMass Amherst ECON 104 - GDP, Equations, and Functions

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