John Maynard Keynes developed his theory of income and employment to explain recessions and offer policy solutions. Key aspects of Keynesian theory include: aggregate demand can fluctuate unexpectedly and lead to unemployment if below potential output; sticky wages and prices can prolong recessions; expansionary fiscal policy can boost aggregate demand to address recessions, while contractionary policy can reduce inflation above potential output. Keynes argued for active but limited government intervention to maintain sufficient aggregate demand.
The Expenditure ApproachIn Week #5, we discussed how severe down.docxmehek4
The Expenditure Approach
In Week #5, we discussed how severe downturns in the economy can eventually be destructive and end up as an economic depression, such as that of the 1930's called the Great Depression.
· Severe drops in output, relative high real unemployment, economic contraction, and apathy occur during severe recessions and periods of economic depression.
One famous economist who was called upon to address the economic malaise of the 1930's period was JohnMaynardKeynes. Published in 1933, The Means to Prosperity was Keynes' economic theories and ideas about government responsibility and authority on how to revive a sluggish economy.
The Expenditure Approach derives GDP by taking consumption (C) and adding business investment (I) and adding government expenditures of goods and services (G) and adding net exports (exports - imports). To Keynes, C + I is equal to aggregate demand, and equilibrium is the result of aggregate spending (C + I + G + NX) being equal to total economic output. If total spending is less than it would be if there were full employment (no cyclical unemployment), then there will be economic recessionary pressures.
Once an economy moves out of long-run equilibrium in which long-run aggregate supply, short-run aggregate supply, and aggregate demand are in equilibrium, what happens and should happen? Keynes believed that prices and wages were sticky in the short run, but as long as aggregate spending was below full employment, there will be economic instability and supply won't change.
· Thus, the key would be to concentrate on shiftingaggregatedemand rightward back into long-run equilibrium instead of waiting for prices and wages to fall and the short-run aggregate supply curve to shift rightward to bring about long-run equilibrium.
· Although Keynes did believe that some savings was necessary for capital accumulation in the economy, savings for the most part undercuts aggregate demand and isn't channeled into the economy.
So, to Keynes, how can aggregate demand be increased to bring about long-run equilibrium? Fiscal policy. Fiscal policy is spending and taxation by the government. Keynes believed that government spending and taxation should follow business cycles.
· If, for example, the economy is recessionary and experiencing less-than-full employment, proper fiscal policy actions should be to increase spending, even going into a budget deficit, and even lowering taxes.
· Because C and I are down in a recession, raising G will help shift aggregate demand rightward, with the "right amount" of government expenditures leading to full employment and long-run equilibrium.
· If, on the other hand, for example, the economy is at full employment and aggregate expenditures are rising, then proper fiscal policy is to reduce spending, even incurring a budget surplus, and raising taxes.
In summary, John Maynard Keynes was considered an authority of economics, sought after by President FDR especially during the Great Depress ...
The Expenditure ApproachIn Week #5, we discussed how severe down.docxmehek4
The Expenditure Approach
In Week #5, we discussed how severe downturns in the economy can eventually be destructive and end up as an economic depression, such as that of the 1930's called the Great Depression.
· Severe drops in output, relative high real unemployment, economic contraction, and apathy occur during severe recessions and periods of economic depression.
One famous economist who was called upon to address the economic malaise of the 1930's period was JohnMaynardKeynes. Published in 1933, The Means to Prosperity was Keynes' economic theories and ideas about government responsibility and authority on how to revive a sluggish economy.
The Expenditure Approach derives GDP by taking consumption (C) and adding business investment (I) and adding government expenditures of goods and services (G) and adding net exports (exports - imports). To Keynes, C + I is equal to aggregate demand, and equilibrium is the result of aggregate spending (C + I + G + NX) being equal to total economic output. If total spending is less than it would be if there were full employment (no cyclical unemployment), then there will be economic recessionary pressures.
Once an economy moves out of long-run equilibrium in which long-run aggregate supply, short-run aggregate supply, and aggregate demand are in equilibrium, what happens and should happen? Keynes believed that prices and wages were sticky in the short run, but as long as aggregate spending was below full employment, there will be economic instability and supply won't change.
· Thus, the key would be to concentrate on shiftingaggregatedemand rightward back into long-run equilibrium instead of waiting for prices and wages to fall and the short-run aggregate supply curve to shift rightward to bring about long-run equilibrium.
· Although Keynes did believe that some savings was necessary for capital accumulation in the economy, savings for the most part undercuts aggregate demand and isn't channeled into the economy.
So, to Keynes, how can aggregate demand be increased to bring about long-run equilibrium? Fiscal policy. Fiscal policy is spending and taxation by the government. Keynes believed that government spending and taxation should follow business cycles.
· If, for example, the economy is recessionary and experiencing less-than-full employment, proper fiscal policy actions should be to increase spending, even going into a budget deficit, and even lowering taxes.
· Because C and I are down in a recession, raising G will help shift aggregate demand rightward, with the "right amount" of government expenditures leading to full employment and long-run equilibrium.
· If, on the other hand, for example, the economy is at full employment and aggregate expenditures are rising, then proper fiscal policy is to reduce spending, even incurring a budget surplus, and raising taxes.
In summary, John Maynard Keynes was considered an authority of economics, sought after by President FDR especially during the Great Depress ...
Here is a recording on key aspects of Keynesian economics applied to current policy issues for the UK and other countries.
An understanding of Keynesian ideas can be helpful in evaluating macroeconomic stability in terms of prices, jobs and incomes.
Keynesians believe that free markets are volatile and not always self-correcting in the event of an external shock
The free-market system is prone to lengthy periods of recession & depression
Economies can remain stuck in an “underemployment” equilibrium
In a world of stagnation or depression, direct state intervention may be essential to restore confidence and lift demand.
Keynes was one of the first economists to criticise the profession for adhering to unrealistic assumptions
classical economic theory Vs Keynisian Theory - an overviewShreya Sahay
The great depression of 1929 was a major event in world economy. the theories and practices before the depression are called the classical theory whereas, the theory that developed after the depression and explains the depression is called Keynesian theory.
The fundamental principle of the classical theory is that the economy is self‐regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP, which is the level of real GDP that is obtained when the economy's resources are fully employed.
National output or income was determined by real factors such as capital stock, state of technology, labour supply and in no way was affected by the general price level which was determined by the quantity of money. This classical doctrine is generally referred to as classical dichotomy.
While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP, self‐adjustment mechanisms exist within the market system that work to bring the economy back to the natural level of real GDP.
The classical doctrine—that the economy is always at or near the natural level of real GDP (full employment)—is based on two firmly held beliefs:
The assumption of the full employment of labour and other productive resources
Belief that prices, wages, and interest rates are flexible.
The general over production, and hence general unemployment, is impossible.
The normal situation is stable equilibrium at full employment.
The classical economist believe that the policy of laissez-faire guaranteed normal full employment. They had great faith in free and perfect competition, efficacy of the profit motive and price mechanism to remedy the temporary ills of the economic system and ensure full employment.
Prof. Pigou says, “With perfectly free competition, there will always be at work a strong tendency for wage rates to be so related to demand that everybody is employed.”
They treated money as a mere medium of exchange. (Transaction motive)
The classical doctrine—that the economy is always at or near the natural level of real GDP (full employment)—is based on two firmly held beliefs:
The assumption of the full employment of labour and other productive resources
Belief that prices, wages, and interest rates are flexible.
Keynesian Theory
Chapter 1 57.What is the difference between recession and de.docxsleeperharwell
Chapter 1
57.
What is the difference between recession and depression in an economy? Provide an example of depression from the real world that has hit the global economy.
Use the following to answer question 58:
Answer: When there is a mild fall in the gross domestic product (GDP) of an economy over a period of time it leads to recession in the economy. If the intensity of the fall in GDP is severe over a period of time, then it turns into a depression. Recession is cyclic in nature; that is, it repeats itself over a period of time in an economy. A famous example of depression is that of the Great Depression of the 1930s that occurred in the United States and affected the global economy. Even the financial crisis of 2008-2009 in the United States was very much reminiscent of the Great Depression.
58.
Refer to the following graph and identify the years for which Country A and Country B experienced recession.
Country A experienced its recession during 2003 and its early recovery during 2004. Country B experienced its first recession during 2002 and its early recovery in 2003. Country B experienced a second recession in 2007.
59.
Why do we call macroeconomics an imperfect science? Explain.
The study of macroeconomics depends mainly upon the historical data on different economies. Macroeconomists analyze these data to explain changes occurring in different economic parameters (income, prices, unemployment, etc.) and formulate policies. Additionally, macroeconomic studies cannot be conducted in controlled experiments, as in biology or chemistry, for example. In this way, macroeconomists are similar to weather forecasters.
60.
Are the terms “market clearing” and “equilibrium” one and the same? Explain.
Yes, both terms represent the same notion: the balance between supply and demand. It is the balancing point at which everything that is produced gets sold and fulfills the entire demand. Thus, if all other things remain constant, then there is no tendency to change the quantity supplied and demanded at this point.
61.
Do you agree with the statement, “macroeconomics rests on the foundation of microeconomics”? Explain.
Macroeconomics involves studying the aggregate of economic variables related to individual decision making parameters, which are microeconomic (think of individuals' expenses, investments, etc.). That is to say, the total expenditure in an economy is the aggregate (sum) of all the expenditures done by all consumers in that economy, or the total investment done in an economy is the aggregate (sum) of all individual investments done by firms in that economy. This reflects that macroeconomic study rests on the foundation of microeconomics.
62.
Give two examples of macroeconomic variables and microeconomic variables.
The income of your father is a microeconomic variable, while the gross domestic product (GDP) of your country is a macroeconomic variable. The money your father saves in the bank is a microeconomic va.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
Here is a recording on key aspects of Keynesian economics applied to current policy issues for the UK and other countries.
An understanding of Keynesian ideas can be helpful in evaluating macroeconomic stability in terms of prices, jobs and incomes.
Keynesians believe that free markets are volatile and not always self-correcting in the event of an external shock
The free-market system is prone to lengthy periods of recession & depression
Economies can remain stuck in an “underemployment” equilibrium
In a world of stagnation or depression, direct state intervention may be essential to restore confidence and lift demand.
Keynes was one of the first economists to criticise the profession for adhering to unrealistic assumptions
classical economic theory Vs Keynisian Theory - an overviewShreya Sahay
The great depression of 1929 was a major event in world economy. the theories and practices before the depression are called the classical theory whereas, the theory that developed after the depression and explains the depression is called Keynesian theory.
The fundamental principle of the classical theory is that the economy is self‐regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP, which is the level of real GDP that is obtained when the economy's resources are fully employed.
National output or income was determined by real factors such as capital stock, state of technology, labour supply and in no way was affected by the general price level which was determined by the quantity of money. This classical doctrine is generally referred to as classical dichotomy.
While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP, self‐adjustment mechanisms exist within the market system that work to bring the economy back to the natural level of real GDP.
The classical doctrine—that the economy is always at or near the natural level of real GDP (full employment)—is based on two firmly held beliefs:
The assumption of the full employment of labour and other productive resources
Belief that prices, wages, and interest rates are flexible.
The general over production, and hence general unemployment, is impossible.
The normal situation is stable equilibrium at full employment.
The classical economist believe that the policy of laissez-faire guaranteed normal full employment. They had great faith in free and perfect competition, efficacy of the profit motive and price mechanism to remedy the temporary ills of the economic system and ensure full employment.
Prof. Pigou says, “With perfectly free competition, there will always be at work a strong tendency for wage rates to be so related to demand that everybody is employed.”
They treated money as a mere medium of exchange. (Transaction motive)
The classical doctrine—that the economy is always at or near the natural level of real GDP (full employment)—is based on two firmly held beliefs:
The assumption of the full employment of labour and other productive resources
Belief that prices, wages, and interest rates are flexible.
Keynesian Theory
Chapter 1 57.What is the difference between recession and de.docxsleeperharwell
Chapter 1
57.
What is the difference between recession and depression in an economy? Provide an example of depression from the real world that has hit the global economy.
Use the following to answer question 58:
Answer: When there is a mild fall in the gross domestic product (GDP) of an economy over a period of time it leads to recession in the economy. If the intensity of the fall in GDP is severe over a period of time, then it turns into a depression. Recession is cyclic in nature; that is, it repeats itself over a period of time in an economy. A famous example of depression is that of the Great Depression of the 1930s that occurred in the United States and affected the global economy. Even the financial crisis of 2008-2009 in the United States was very much reminiscent of the Great Depression.
58.
Refer to the following graph and identify the years for which Country A and Country B experienced recession.
Country A experienced its recession during 2003 and its early recovery during 2004. Country B experienced its first recession during 2002 and its early recovery in 2003. Country B experienced a second recession in 2007.
59.
Why do we call macroeconomics an imperfect science? Explain.
The study of macroeconomics depends mainly upon the historical data on different economies. Macroeconomists analyze these data to explain changes occurring in different economic parameters (income, prices, unemployment, etc.) and formulate policies. Additionally, macroeconomic studies cannot be conducted in controlled experiments, as in biology or chemistry, for example. In this way, macroeconomists are similar to weather forecasters.
60.
Are the terms “market clearing” and “equilibrium” one and the same? Explain.
Yes, both terms represent the same notion: the balance between supply and demand. It is the balancing point at which everything that is produced gets sold and fulfills the entire demand. Thus, if all other things remain constant, then there is no tendency to change the quantity supplied and demanded at this point.
61.
Do you agree with the statement, “macroeconomics rests on the foundation of microeconomics”? Explain.
Macroeconomics involves studying the aggregate of economic variables related to individual decision making parameters, which are microeconomic (think of individuals' expenses, investments, etc.). That is to say, the total expenditure in an economy is the aggregate (sum) of all the expenditures done by all consumers in that economy, or the total investment done in an economy is the aggregate (sum) of all individual investments done by firms in that economy. This reflects that macroeconomic study rests on the foundation of microeconomics.
62.
Give two examples of macroeconomic variables and microeconomic variables.
The income of your father is a microeconomic variable, while the gross domestic product (GDP) of your country is a macroeconomic variable. The money your father saves in the bank is a microeconomic va.
Similar to keynes theory of income and employment.pptx (20)
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...
keynes theory of income and employment.pptx
1. Keynes Theory of Income and
Employment
Dr Ch Lakshmi Kumari
Professor
2. Keynes Background
John Maynard Keynes (1883-1946) was the son of a
Cambridge economist, and had a huge social and public life as
a member of the Bloomsbury Group of prominent intellectuals
and artists. He studied economics formally for only 8 weeks
under Marshall, and never completed his degree. He moved
quickly into public service at the India Office (in London), the
Treasury, and the Bank of England. He eventually returned to
academia to teach at Cambridge and to serve as editor of the
Economic Journal (the premier British journal). He was among
the leaders of the Bretton Woods Conference after World War
II that created the IMF and established a system of fixed
exchange rates. He wrote several books, but is best known for
the ideas presented in The General Theory of Employment,
Interest and Money, published in 1936
3. Aggregate Demand in Keynesian Analysis
● The Keynesian perspective focuses on the
idea that firms produce output only if they
expect it to sell.
● Real GDP - the amount of goods and services
actually sold in a nation.
● Keynes argued that aggregate demand is not
stable - that it can change unexpectedly.
● Recessionary gap - equilibrium at a level of
output below potential GDP.
● Inflationary gap - equilibrium at a level of
output above potential GDP.
4. The Keynesian AD/AS Model
● The Keynesian View of the AD/AS Model uses an SRAS curve,
which is horizontal at levels of output below potential and vertical
at potential output.
● Thus, when beginning from potential output, any decrease in AD
affects only output, but not prices.
● Any increase in AD affects only prices, not output.
5. What Determines Consumption
Expenditure?
● Consumption expenditure is spending by
households and individuals on durable goods,
nondurable goods, and services.
● Keynes identified three factors that affect
consumption:
• Disposable income - income after taxes.
• Expected future income
• Wealth or credit
6. What Determines Investment
Expenditure?
● Spending on new capital goods is called investment
expenditure.
These fall into four categories:
• producer’s durable equipment and software
• nonresidential structures (such as factories, offices,
and retail locations)
• changes in inventories
• residential structures (such as single-family homes,
townhouses, and apartment buildings)
● When a business decides to make an investment in
physical or intangible assets, the firm considers both:
• the expected investment benefits (future profit
expectations)
• the investment costs (interest rates)
7. What Determines Government Spending?
● National, state, and local government spending
provides important public services such as national
defense, transportation infrastructure, and education.
● Keynes recognized that the government budget
offered a powerful tool for influencing aggregate
demand.
• More government spending could stimulate AD (or
less government spending reduce it).
• Lowering or raising tax rates could influence
consumption and investment spending.
● Keynes concluded that during extreme times like deep
recessions, only the government had the power and
resources to move aggregate demand.
8. What Determines Net Exports?
● Since we define aggregate demand as
spending on domestic goods and services,
export expenditures add to AD, while import
expenditures subtract from AD.
● Two sets of factors can cause shifts in export
and import demand:
• changes in relative growth rates between
countries
• changes in relative prices (including
exchange rates) between countries
9. The Building Blocks of Keynesian Analysis
● Keynesian economics focuses on explaining why
recessions and depressions occur and offering a
policy prescription for minimizing their effects.
● The Keynesian view of recession is based on two key
building blocks.
• Aggregate demand is not always automatically high
enough to provide firms with an incentive to hire
enough workers to reach full employment.
• The macroeconomy may adjust slowly to shifts in
aggregate demand because of sticky wages and
prices.
● Sticky wages and prices - a situation where wages
and prices do not fall in response to a decrease in
demand, or do not rise in response to an increase in
demand.
10. Wage and Price Stickiness
● Keynes pointed out that although AD fluctuated, prices
and wages did not immediately respond as economists
often expected.
● Instead, prices and wages are “sticky,” making it
difficult to restore the economy to full employment and
potential GDP.
● Keynes emphasized one particular reason why wages
were sticky: the coordination argument.
● Coordination argument - downward wage and price
flexibility requires perfect information about the level of
lower compensation acceptable to other laborers and
market participants.
11. Wage and Price Stickiness
● Some modern economists have argued that
along with wages, other prices may be sticky
too.
● When a firm considers changing prices, it must
consider two sets of costs.
• changing prices uses company resources
• frequent price changes may leave
customers confused or angry
● Menu costs - costs firms face in changing
prices.
12. Sticky Prices and Falling Demand in the
Labor and Goods Market
● In both (a) and (b), demand shifts left from D0 to D1.
● However, the wage in (a) and the price in (b) do not immediately
decline.
● In (a), the quantity demanded of labor at the original wage (W0) is
Q0, but with the new demand curve for labor (D1), it will be Q1.
● Similarly, in (b), the quantity demanded of goods at the original
price (P0) is Q0, but at the new demand curve (D1) it will be Q1.
13. Sticky Prices and Falling Demand in the
Labor and Goods Market, Continued
● An excess supply of labor will exist, which we call unemployment.
● An excess supply of goods will also exist, where the quantity
demanded is substantially less than the quantity supplied.
● Thus, sticky wages and sticky prices, combined with a drop in
demand, bring about unemployment and recession.
14. Jobs Lost/Gained in the
Recession/Recovery
● Discussion Questions:
○ Why is the pace of wage adjustments slow?
○ What does the data in the charts above suggest about jobs
lost and gained since the Great Recession in the country
15. A Keynesian Perspective of Recession
● The figure illustrates the two key assumptions behind Keynesian
economics.
● A recession begins when aggregate demand declines from AD0 to
AD1.
16. A Keynesian Perspective of Recession,
Continued
● The recession persists because of the assumption of fixed wages
and prices, which makes the SRAS flat below potential GDP.
● If that were not the case, the price level would fall also, raising GDP
and limiting the recession.
● Instead the intersection E1 occurs in the flat portion of the SRAS
curve where GDP is less than potential.
17. The Phillips Curve
● Recall the different zones in the AS curve.
● Phillips curve - the tradeoff between unemployment and inflation.
18. A Keynesian Phillips Curve Tradeoff
between Unemployment and Inflation
● A Phillips curve illustrates a tradeoff between the unemployment
rate and the inflation rate.
● If one is higher, the other must be lower.
● For example, point A illustrates a 5% inflation rate and a 4%
unemployment.
● If the government attempts to reduce inflation to 2%, then it will
experience a rise in unemployment to 7%, as point B shows.
19. The Phillips Curve from 1960–1969
● This chart shows the negative relationship between
unemployment and inflation.
20. U.S. Phillips Curve, 1960–1979
● The tradeoff between unemployment and inflation appeared to
break down during the 1970s as the Phillips Curve shifted out to
the right.
21. Keynesian Policy for Fighting
Unemployment and Inflation
● Keynesian macroeconomics argues that the solution to a recession
is expansionary fiscal policy.
● Expansionary fiscal policy - tax cuts or increases in government
spending designed to stimulate aggregate demand and move the
economy out of recession.
● When the economy is operating above potential GDP,
unemployment is low, but inflationary rises in the price level are a
concern.
• The Keynesian response would be contractionary fiscal policy,
using tax increases or government spending cuts to shift AD to
the left.
• The result would be downward pressure on the price level, but
very little reduction in output or very little rise in unemployment.
Contractionary fiscal policy - tax increases or cuts in government
spending designed to decrease aggregate demand and reduce
inflationary pressures
22. Fighting Recession and Inflation with
Keynesian Policy
● If an economy is in recession, with an equilibrium at Er, then the
Keynesian response would be to enact a policy to shift aggregate
demand to the right from ADr toward ADf.
● If an economy is experiencing inflationary pressures with an
equilibrium at Ei, then the Keynesian response would be to enact
a policy response to shift aggregate demand to the left, from ADi
toward ADf.
23. The Keynesian Perspective on
Market Forces
● Controversy has simmered over the extent to
which government should play an active role in
managing the economy.
● Some supporters of Keynesian economics
advocated a high degree of government
planning in all parts of the economy.
● However, Keynes was careful to separate the
issue of aggregate demand from the issue of
how well individual markets worked.
24. The Keynesian Perspective on
Market Forces
● He argued that individual markets for goods
and services were appropriate and useful, but
that sometimes that level of aggregate
demand was just too low.
● He also believed that, while government
should ensure that overall level of aggregate
demand is sufficient for an economy to reach
full employment, this task did not imply that the
government should attempt to set prices and
wages, nor to take over and manage large
corporations or entire industries directly.
25. The Multiplier - Introduction
• We now need to introduce the Multiplier
theory and investigate in more detail the
process by which income or output changes
when an autonomous change occurs in any of
the components of aggregate demand.
26. The Multiplier - Brief History1
• Concept first developed by Richard Khan.
• Early theory was employment multiplier.
• Keynes first made use of Kahn’s multiplier in
1933, when he discussed the effects of an
increase in government spending of £500 (a
sum assumed to be just sufficient to employ a
man for one year in the construction of public
works)
27. The Multiplier - Brief History - 2
• Keynes wrote:
‘If the new expenditure is additional and not merely in
substitution for other expenditure, the increase of
employment does not stop there. The additional wages
and other incomes paid out are spent on additional
purchases, which in turn lead to further employment . .
. the newly employed who supply the increased
purchases of those employed on the new capital works
will, in their turn, spend more, thus adding to the
employment of others; and so on’
28. The Multiplier - Brief History - 3
• By the time of the publication of the General
Theory in 1936, Keynes had placed the
multiplier at the heart of how an economy can
settle into an underemployment equilibrium.
• In the General Theory, Keynes focused
attention on the investment multiplier,
explaining how a collapse in investment and
business confidence can cause a multiple
contraction of output.
29. The Multiplier Model
• The multiplier model tells us how much
output may change as the AD shifts due to an
initial change in expenditures.
30. The Multiplier Model
• The multiplier model assumes that the price
level remains constant - and then explores
specific questions about expenditures.
31. The Multiplier Model
• The multiplier model gives numerical answers
about the effect of changes in aggregate
expenditures on aggregate output.
32. The AS/AD Model When Prices Are
Fixed, Fig. 10-1, p 236
?
Cumulative shift
20
P0
Aggregate supply
AD0
Real output
Price
level
AD1
Initial shift
Induced shift
(Multiplier effects)
33. Aggregate Production
• Aggregate production (AP) is the total amount
of goods and services produced in every
industry in an economy.
36. Aggregate Production
• Real production (in dollars) is on the vertical
axis, and real income (in dollars) is on the
horizontal axis.
At all points on this curve, income
equals production.
37. The Aggregate Production Curve, Fig.
10-2, p 237
Aggregate production
(production = income)
A
45º
$4,000
0
Real production
Real income
$4,000
B
Potential income
C
38. Aggregate Expenditures
• Aggregate expenditures (AE) in the multiplier
model consist of:
– Consumption – spending by consumers.
– Investment – spending by business.
– Spending by government.
– Net foreign spending on Canadian goods – the
difference between Canadian exports and
Canadian imports.
39. Aggregate Expenditures
• The four expenditure components of national
income accounting were developed around
the multiplier model.
AE = C + I + G + (X - IM)
41. Autonomous and Induced
Expenditures
• Even if income is zero, spending is still taking
place.
• The money comes from borrowing, or from
previous savings.
42. Autonomous and Induced
Expenditures
• Autonomous expenditures are those that
would exist at a zero level of income.
• Autonomous expenditures are independent of
income.
44. Autonomous and Induced
Expenditures
• Induced expenditures are those that change
as income changes.
Induced expenditures change by less
than the change in income.
45. Aggregate Expenditures Related to
Income, Table 10-1, p 238
Income
(Yd)
Change in
Income
(Y)
Aggregate
Expenditures
(AE)
Change in
Expenditures
(E)
Row
0 — 1,000 — A
1,000 1,000 1,800 800 B
2,000 1,000 2,600 800 C
3,000 1,000 3,400 800 D
4,000 1,000 4,200 800 E
5,000 1,000 5,000 800 F
6,000 1,000 5,800 800 G
46. Expenditures Function
• The relationship between expenditures and
income can be expressed more concisely as an
expenditures function.
• An expenditures function is a representation
of the relationship between aggregate
expenditures and income.
47. Expenditures Function
AE = aggregate
expenditures
AEo = autonomous
expenditures
mpc = marginal propensity to
consume
Y = income
The expenditures function is expressed
as a mathematical function:
AE = AEo + mpcY
48. The Expenditure Multiplier
● Macroeconomic externality - occurs when what happens at the
macro level is different from and inferior to what happens at the
micro level.
● Expenditure multiplier - Keynesian concept that asserts that a
change in autonomous spending causes a more than proportionate
change in real GDP.
• The idea that not only does spending affect the equilibrium
level of GDP, but that spending is powerful.
Δ Y > 1
Δ Spending
● The reason for the expenditure multiplier is that one person’s
spending becomes another person’s income, which leads to
additional spending and additional income
• The cumulative impact on GDP is larger than the initial
increase in spending.
49. Graphing the Expenditures Function
• The graphical representation of the
expenditures function is called the aggregate
expenditures curve.
• The expenditures function's slope tells us how
much expenditures change with a particular
change in income.
50. Graphing the Expenditures Function
• It is assumed that only consumption changes
with income; the other expenditure
components – I, G, (X - IM) – are all
independent of income.
51. Graphing the Expenditures Function, Fig.
10-3, p 240
0
45º
AE = 1,000 + 0.8Y
Real
expenditures
(AE)
$12,200
10,000
8,000
6,000
4,000
2,000
5,000
1,000
$5,000 $11,250$14,000
$8,750 Real income
AE = 2,000
Y = 2,500
Aggregate production
2,500
2,000
Y
AE
slope
0.8
Y
AE
mpc
52. Shifts in the Expenditures Function
• The expenditure function shifts up and down
when autonomous C, I, G, or X - IM change.
• The reason that these shifts are so important
is that the multiplier model is an historical
model in time.
53. Shifts in the Expenditures Function
• The multiplier model can be used to analyze
shifts in aggregate expenditures from an
historically given level.
It cannot be used to determine income
independent of the economy's historical
position.
54. Determining the Level of Aggregate
Income
• In bringing AP and AE together in one
framework, the following is assumed :
– The price level is constant.
– The AP curve is a 45o line until the economy
reaches its potential income.
– Expenditures shown on the AE line do not
necessarily equal AP or income.
55. Determining the Level of Aggregate
Income
• To determine income graphically, you find the
income level at which AE equals AP.
56. Solving for Equilibrium Graphically,
Fig. 10-4, p 241
45°
Aggregate
expenditures
AE = 1,000 + 0.8Y
Aggregate
production
12,200
0
Real
expenditures
(AE)
5,000
1,000
$5,000 $14,000
$14,000
10,000
8,000
Real income
$2,000 $10,000
2,600 AE0 = $1,000
E
57. The Multiplier Equation
• The multiplier equation tells us that income
equals the multiplier times autonomous
expenditures.
Y = (multiplier)(autonomous expenditures)
58. The Multiplier Equation
• The multiplier equation is a useful way to
determine the level of income in the
multiplier model.
59. The Multiplier Equation
• The multiplier is a number that reveals how
much income will change in response to a
change in autonomous expenditures.
Multiplier = 1/(1 – mpc)
60. The Multiplier Equation
• As the mpc increases, the multiplier increases:
mpc Multiplier =
1/(1-mpc)
mpc Multiplier =
1/(1-mpc)
0.5 2.0 0.8 5
0.6 2.5 0.9 10
0.75 4.0 0.95 20
61. The Multiplier Process
• The multiplier process amplifies changes in
autonomous expenditures.
• What forces are operating to ensure that the
income level we determined is actually the
equilibrium income level?
62. The Multiplier Process
• When expenditures do not equal current
output, business people change planned
production:
Which changes income, which changes
expenditures,
Which changes production, which changes
income,
Which changes . . . etc.
63. The Multiplier Process, Fig. 10-5, p 244
C, I, G, (X
– IM)
A2
A1
C
B1
B2
0
Real
expenditures
(AE)
6,000
2,000
$5,000 $14,000
$14,000
10,000
Real income
$2,000 $10,000
Aggregate
expenditures
45°
Aggregate
production
$13,200
AE = 1,000 + 0.8Y
64. The Circular Flow Model and the
Multiplier Process
• The circular flow model provides the intuition
behind the multiplier process.
65. The Circular Flow Model and the
Multiplier Process
• Expenditures are injections into the circular
flow.
The mpc measures the percentage of
expenditures that get injected back into
the economy each round of the circular
flow.
But there are withdrawals.
66. The Circular Flow Model and the
Multiplier Process
• Economists use the term the marginal
propensity of save (mps) to represent the
percentage of income flow that is withdrawn
from the economy for each round of the
circular flow.
67. The Circular Flow Model and the
Multiplier Process
• By definition:
mpc + mps = 1
Alternatively expressed:
mps = 1 - mpc
multiplier = 1/mps
68. The Circular Flow Model and the
Multiplier Process
Aggregate income
Aggregate expenditures
Households Firms
69. The Multiplier Model in Action
• The first step in understanding the AP/AE
analysis is determining the level of income
using the multiplier.
• This was already explained.
70. The Multiplier Model in Action
• The second step is to modify that analysis to
answer a question that is of much more
interest to policy makers.
How much would a change in
autonomous expenditures change the
equilibrium level of income?
71. The Multiplier Model in Action
• Autonomous expenditures are determined
outside the model not as a result of changes
in income.
Autonomous expenditures can, and do,
shift for a number of reasons.
When they do, the multiplier process is
called into play.