The document summarizes macroeconomic concepts related to the classical and Keynesian models, aggregate demand and supply, and the multiplier effect. It explains that the classical model assumes prices adjust to changes in aggregate demand, while the Keynesian model recognizes prices may be "sticky" in the short run, leading to unemployment. It also outlines the aggregate demand-aggregate supply model and how fiscal policy like government spending can be used to increase aggregate demand under the Keynesian view. Finally, it discusses the consumption function and multiplier effect, how autonomous consumption and marginal propensity to consume impact consumption levels, and how to calculate the multiplier.
13. AD-AS Model
Aggregate Demand
Long Run Aggregate Supply - Classical
Keynes - Sticky Prices
Short Run Aggregate Supply
Change Output and Prices in Short Run
Only Change Prices in Long Run
14. AD-AS Model
If Aggregate Demand Decreases
Need Government Spending
Stagnation and Inflation
Stagflation
SRAS Decreases
Hope it increases
29. Quiz
If autonomous consumption is $10,000 and the MPC is .80,
and income is $50,000, will you be saving, spending, or
breaking even?
C = autonomous consumption + (MPC xY)
C = $10,000 + (.80 x $50,000)
C = $10,000 + $40,000
C = $50,000
Y = $50,000
You are breaking even
30. Quiz
If autonomous consumption is $15,000 and the MPC is .75,
and income is $40,000, will you be saving, spending, or
breaking even?
C = autonomous consumption + (MPC xY)
C = $15,000 + (.75 x $40,000)
C = $15,000 + $30,000
C = $45,000
Y = $40,000
You are borrowing $5,000
31. Quiz
If autonomous consumption is $20,000 and the MPC is .90,
and income is $100,000, will you be saving, spending, or
breaking even?
C = autonomous consumption + (MPC xY)
C = $20,000 + (.90 x $100,000)
C = $20,000 + $90,000
C = $110,000
Y = $100,000
You are borrowing $10,000
32. Quiz
If autonomous consumption is $5,000 and the MPC is .50,
and income is $40,000, will you be saving, spending, or
breaking even?
C = autonomous consumption + (MPC xY)
C = $5,000 + (.50 x $40,000)
C = $5,000 + $20,000
C = $25,000
Y = $40,000
You are saving $15,000
35. Quiz
If the MPC is .80 and a new investment of $1,000 is made,
how much will GDP change?
GDP Change = planned investment x multiplier
GDP Change = $1,000 x (1 ÷ .20)
GDP Change = $1,000 x 5
GDP Change = $5,000