& Goods

Market

1) Aggregate
demand supply
Function
2) Consumption
I
3) Equilibrium
4) Equilibrium changes
5) Investment function

6) Equilibrium #
 Goods Market
·

the total quantity of goods demanded the

Aggregate Demand : in
economy

AD =

C+l+G+X-M C :

Consumption X =

exports
I = investment M =

imports
6 public XN -M
=

expeditore =

Equilibrium :
production is in
equilitrium when the
quantity demanded equals the quantity produced

↑ =
AD =
C + G + I + XN

unplanned inventory (UI) when there

:

appears is no
equilibrium

VI =

Y
-

DA

3
> DA
unplanned inventory investment (4 stocks) Y = UI> O
:

unplanned inventory disinvestment :

(↓ stocks) (DA = VICO

firms observation :
demand > production => increase level of production (TY)

Consumption function C C =

C+CYD

autonomous consumption, (E(0 , 1) to

where >O is =

marginal propensity consume

YD disposible
=

income

consumption function
changes in the

1 .
A
shift in autonomous component of consumption such that osAs 2 .
A

change in the marginal propensity to consume such that

,
co
 Savings function

Savings S are defined as the difference between income and consumption C .

Given the consumption function define

savings function
now we
as
:

to
I

S C C-CYD (1 CYy C Consumption cE(0 , 1) marginal propensity consume

:

Y Y +
-
- =
- -
= =
=

I investment YD disposible
=

= income

Y =

production

auto . of demand
comp
.

*: 4
equilibrium production Y level of production in which demand = production 1 - C(1 -

t)

Y =
AD

3
↑ E
E

A
(
E

AD N <(1 t)Y +E
N

=
=

+ + +
=

+ - + +

= A + <(1 -

t)y

-Ft)
*
A (F-TE] Y
[

-c the autonomous component of consumption Y =

AD = =

A =
A + + +XN the autonomous component of
aggregate demand

*
Thus A
:
4
= 1t)

-
unterschied ?

Equilibrium Stability

Y*
*
If Yo(Y = AD> Yo -> Ul CO (Excessdeand) = YY if Yo> = AD(Yo - UI>O(Excess Supply) = Stocks - Y

Alternative equilibrium
↓ =

C + + +XN (equilibrium) -> Then,

YD =

Y-tY-T TR + = C +S (national income)

-> Ther,
Equilibrium (changes)
1 .
The multiplier

2 .

Changes in
marginal propensity

3 .
public Sector

surplus

Investment function

Assume that consumption C is as follows :

I Ei where ISO F the unplanned investment

↓ the investment
sositivity to interest rate
=0 =

Equilibrium
*
production Y

Equilibrium the production production y

production Y
*: level of in which demand = =

AD
Equilibrium
Formel IS Curve :

Is curve Equilibrium -

IS curve
-
2

Y AD A+ c(1 t)
-
Y + di +
+ XN
The
-

combination (4*, i) that market

=

Galance the goods

=

Y E (1 t)
↑
+ < di
- -
=

Ther 4 ( -di) i

=
-
Exercises
Y: output
:

sensitivity of investment to i)