when i = 0; c = 600
Post on 30-Dec-2015
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The intersection of the consumption equation and the 45-degree line represents an income-expenditure equilibrium only if investment spending is zero.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
When I = 0; C = 600.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
When I = 200; C = 1000.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
When I = 400; C = 1400.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
When I = 600; C = 1800.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
When I = 800; C = 2200.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
Let’s let investment spending be zero initially and then increase it in increments 200, keeping track of the relationship between consumption and investment.
When I = 1000; C = 2600.
C = 200 + 2/3Y and Y = C + I
C = 200 + 2/3 (C + I) = 200 + 2/3C + 2/3I
1/3C = 200 + 2/3I
C = 600 + 2I
27. We can see that, for a wholly privateeconomy, the equilibrium condition ofincome-expenditure analysis (Y = C + I), together with the consumptionequation (C = a + bY), implies thatconsumption and investment
a. move in opposite directions.b. move in the same direction. c. move towards full employment.d. move away from equilibrium.
28. If "a" in the equation C = a + bY is 30and the marginal propensity to consume is0.6, then, for a wholly private economy,the equilibrium level of consumption isrelated to the level of investment by theequation
a. C = 75 + 1.5 I.b. C = 75 - 1.5 I.c. C = 50 + 0.4 I.d. C = 50 - 0.4 I.
So, C and I are positively related. There’s no trading off one against the other.
Is this last point (I=1000;C=2600) below, at, or above full employment?
Imposing a PPF, which Keynes would not be inclined to do, shows that the economy is “overheated.” So, let’s reduce investment until we have full employment without inflation.
Keynes’s Paradox of Thrift
Trying to save more doesn’t result in more saving.
It results, instead, in less income out of which to save.
To resolve the paradox, let’s outfit the model with a Hayekian triangle and corresponding labor markets.
To resolve the paradox, let’s outfit the model with a Hayekian triangle and corresponding labor markets.
To resolve the paradox, let’s outfit the model with a Hayekian triangle and corresponding labor markets.
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