Matematica
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8 páginas
chapter:27
>> Income and Expenditure
Krugman/Wells
©2009 Worth Publishers
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WHAT YOU WILL LEARN IN THIS CHAPTER
The nature of the multiplier, which shows how initial changes in spending lead to further changes. The meaning of the aggregate consumption function, which shows how disposable income affects consumer spending How expected future income and aggregate wealth affect consumer spending The determinants of investment spending, and the distinction between planned investment and unplanned inventory investment
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WHAT YOU WILL LEARN IN THIS CHAPTER
How the inventory adjustment process moves the economy to a new equilibrium after a change in demand Why investment spending is considered a leading indicator of the future state of the economy
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The Multiplier: An Informal Introduction
The marginal propensity to consume, or MPC, is the increase in consumer spending when disposable income rises by $1. The marginal propensity to save, or MPS, is the increase in household savings when disposable income rises by $1.
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The Multiplier: An Informal Introduction
Increase in investment spending = $100 billion + Second-round increase in consumer spending = MPC × $100 billion + Third-round increase in consumer spending = MPC2 × $100 billion + Fourth-round increase in consumer spending = MPC3 × $100 billion ••••••••••••
Total increase in real GDP = (1 + MPC + MPC2 + MPC3 + . . .) × $100 billion
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The Multiplier: An Informal Introduction
So the $100 billion increase in investment spending sets off a chain reaction in the economy. The net result of this chain reaction is that a $100 billion increase in investment spending leads to a change in real GDP that is a multiple of the size of that initial change in spending. How large is this multiple?
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The Multiplier: Numerical Example
Rounds of Increases of Real GDP When MPC = 0.6
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The Multiplier: Numerical Example