m e = 4 460 500 460 500 ae(c+ig 1 ) ae(c+ig) ae(c+ig 2 ) s y r y * y r y * 10 ig 390 470 550 630 390...

““MMEE” = 4” = 4 460 460 500500

AE(C+IgAE(C+Ig11))

AE(C

+Ig

)A

E(C

+Ig

)

AE(C+IgAE(C+Ig22))SS

YYRR YY**

10 Ig10 Ig

390390 470470 550550 630630 Real GDP00

AEAE3 3 (C+Ig(C+Ig+G+G+Xn) (+Xn) (ComplexComplex Economy Economy) [) [MixedMixed--openopen]]

AEAE2 2 (C+Ig(C+Ig+Xn+Xn) () (PrivatePrivate--openopen) [X(40)-M(20)]) [X(40)-M(20)]AEAE11((C+IgC+Ig)[)[Basic EconomyBasic Economy][][PrivatePrivate(no(no G)-G)-ClosedClosed(no X or M)](no X or M)]

ConsumptionConsumption

+80+80 +80+80+80+80CC=390=390

((AEAE11)470)470

((AEAE22)550)550

((AEAE33)630)630

+20 Xn+20 Xn+20 G+20 G

+20 Ig+20 Ig

SS

Real GDPReal GDP

45°45°

45°45°

BuildingBuilding

PrivatePrivate--openopen

Mixed Mixed - - openopen

……added foreign tradeadded foreign trade

Added gov spendingAdded gov spending

[[SimpleSimple [[BasicBasic]] economy to economy to ComplexComplex economy]economy]

[C+Ig+[C+Ig+GG++XnXn] ]

[C + Ig][C + Ig]

[C + Ig + [C + Ig + XnXn]]

Private - closedPrivate - closed

AE

AE

[[ CC ++

Ig

Ig

]] (b

illion

s o

f d

ollars

)

o45

o

CConsumptiononsumption

C + IC + Igg

IIg g = $20 = $20 BillionBillion

EquilibriumEquilibrium

370 390390 410 430 450 470470 490 510 530 550

Building the ModelBuilding the ModelAE[C+Ig] [AE[C+Ig] [““BasicBasic”” or or ““SimpleSimple”” economy] economy]

C =$450 BillionC =$450 Billion

$530

510

490

470470

450

430

410

390

370+ 2

0 Ig

+80

SS

GDP will increase by a “multiple” of GDP will increase by a “multiple” of 44 & & that is why it is called the “multiplier”.that is why it is called the “multiplier”.

Real GDPReal GDP

MMultiplierultiplier==44 Private -Private - ClosedClosed

Change in QCChange in QC ((oror QS) QS)[Income change, movement from point to point][Income change, movement from point to point]

Con

su

mp

tion

Con

su

mp

tion

Savin

gS

avin

g

oo

oo4545oo

ConsumptionConsumption

SS

CC11

SS

DIDI22

Disposable IncomeDisposable Income

SSAVINGAVING

SSAVINGAVING

DISSAVINGDISSAVING[Negative saving][Negative saving]

DISSAVINGDISSAVING

So, the key to achange in QC(QS)

is a change in ?

BreakevenBreakeven

DDII11DDII33

CC22

SS

(Disposable Income)(Disposable Income)

NON-INCOME DETERMINANTS [NON-INCOME DETERMINANTS [ShiftersShifters]]OF OF CONSUMPTIONCONSUMPTION AND AND SAVINGSAVING

WWealthealth Increase Increase or or decrease decrease in in wealthwealth

IIncreasencrease//decrease decrease in PLin PL

TTaxationaxation increasesincreases//decreasesdecreasesCConsumer Expectationsonsumer Expectations [about future availability, income, & prices]

HHousehold Debtousehold Debt

Con

su

mp

tion

Savin

g

o

o45

o

CC11

SS11

Disposable Income

Disposable Income

CC22

SS22

Increase in ConsumptionIncrease in Consumption ((Decrease in Decrease in SavingSaving))

[shift/whole curve/non-income]

Increases inIncreases inconsumptionconsumptionmeans…means…

DecreaseDecreasein savingin saving

May be caused byMay be caused by::Increase in wealthIncrease in wealthDecrease in PLDecrease in PLExpect. PL incr.Expect. PL incr.Expect. of positive YExpect. of positive YExpect. of shortagesExpect. of shortagesDecrease in debtDecrease in debt**Decrease in taxesDecrease in taxes

**Decrease inDecrease in taxes taxesincreases both C increases both C & & SS

I’ll buy more and I’ll buy more and save even more.save even more.

Con

su

mp

tion

Savin

g

o

o45

o

CC11

SS00

Disposable Income

Disposable Income

CC22

SS22

Decrease in ConsumptionDecrease in Consumption ((Increase in SavingIncrease in Saving))[shift/whole curve/non-income[shift/whole curve/non-income]

Decreases inDecreases inconsumptionconsumptionmeans…means…

IncreaseIncreasein savingin saving

May be caused byMay be caused by::Decrease in wealthDecrease in wealthIncrease in PLIncrease in PLExpect. PL decreaseExpect. PL decreaseExpect. neg. future Y Expect. neg. future Y Increase in debtIncrease in debt**Increase in taxesIncrease in taxes

**Increase in taxes Increase in taxes decreasesdecreases bothboth C C & & SS

.80 .85 .90 .95 1.0.986

.976

.972

.940

.907

.873

.869

.842

CanadaCanada

United StatesUnited States

NetherlandsNetherlands

United KingdomUnited Kingdom

GermanyGermany

ItalyItaly

JapanJapan

FranceFrance

GLOBAL PERSPECTIVEGLOBAL PERSPECTIVEAverage Propensities to Consume [C/Y],Average Propensities to Consume [C/Y],

Selected Nations, 2000Selected Nations, 2000

NominalNominalInterestInterest

RateRate

RealRealInterestInterest

RateRate

InflationInflationPremiumPremium

-88%%

66%%

22%%

[[Nominal I.R.Nominal I.R. – – inflation rateinflation rate = = Real I.R.Real I.R.]]

==

- ==

Marginal Efficiency of Investment [MEI]Marginal Efficiency of Investment [MEI][If expected returns equal or exceed the real interest rate of [If expected returns equal or exceed the real interest rate of

interest,interest, the the firm will normally makefirm will normally make the the investment.]investment.]

30%30%

25%25%

2020%%

15%15%

10%10%

5%5%

[QID] Quantity of Investment Demanded (millions)

0 1 20 1 2 33 44 55 66

MEI = 27%MEI = 27%

Renovate plantRenovate plant

$2 million$2 million

MEI=20%MEI=20%

Add newAdd newwing to wing to factoryfactory$1 mil.$1 mil.

MEI=15%MEI=15%

PurchasePurchasemachinesmachines$1.5 mil.$1.5 mil.

MEI=12%MEI=12%

AcquireAcquireadditionaladditional

powerpowerfacilitiesfacilities$1.5 mil.$1.5 mil.

MEI = 7%MEI = 7%

Install computerInstall computersystem $1 mil.system $1 mil.

[[OneOne firm’s demand firm’s demandcurve for investment]curve for investment]

Re

al I

nte

res

t R

ate

Re

al I

nte

res

t R

ate

[A 20% cost of[A 20% cost offunds attract funds attract $100 billion of$100 billion ofinvestmentinvestment

25%25%

15%15%

10%10%

Change in QIDChange in QID[interest rate change, point to point movements][interest rate change, point to point movements]

QIDQID11 QIDQID22

I.R. QIDI.R. QID

100100 200200

A 5% cost of fundsA 5% cost of fundsattracts $200 bil. Igattracts $200 bil. Ig

00 5050 150150 250250

[MEI][MEI]

DDI (MEI)I (MEI)

Firms invest with their profitsFirms invest with their profits& also& also borrow(5%) to invest.(10%)borrow(5%) to invest.(10%)

Re

al I

nte

res

t R

ate

sR

ea

l In

tere

st

Ra

tes

20%20%

5%5%

Positive profit expectationsPositive profit expectations and the real interest ratereal interest rate are the most important determinants of investment.

Drill Press - $1,000Drill Press - $1,000A. Expected gross profitsExpected gross profits = $1,100$1,100 or a 10%10% returnreturn. [$100/$1,000 x 100 = 10%] [At 88%%, investinvest; at 1212%%, don’t investdon’t invest]

B. Real interest rateReal interest rate [nominal interest rate-inflation]

Single FirmSingle Firm

Investment (billions)

Exp

ecte

d r

ate

of

retu

rn,

r,

an

d in

tere

st

rate

, i

(perc

en

ts)

16

14

12

10

88%%

6

44%%

2

01 10 1515 2020 2525 3030 35 40

QIDQID

ChangeChange in in Quantity Quantity of of Investment Demanded Investment Demanded [QID][QID]

(Interest rate change, point to point movement)(Interest rate change, point to point movement)DDII Firms will undertake all investments[additions to plant, [additions to plant, equipment, inventory,equipment, inventory,and residential construction]and residential construction] which have an expected rate of net profit greater than [or equal to] the real rate of interest.

Monetary PolicyMonetary Policy – by loweringinterest rates, the Fed can increase Ig & employment.

[[IInnvveerrssee rrelationship elationship bbetweenetween real interest rreal interest rateate and and QQIIDD]]

QIDQID

CHANGE CHANGE [Shift][Shift] IN INVESTMENT IN INVESTMENT [[curve]curve]

8%8%

QIDQID11

II11 II22

QIDQID22

Increase in InvestmentIncrease in Investment1.1. Positive profit expectationsPositive profit expectations2.2. Scarcity of inventoryScarcity of inventory3.3. Technology [innovation]Technology [innovation]4.4. Decrease in production costsDecrease in production costs5.5. Decrease in business taxes Decrease in business taxes

INVESTMENT DEMAND & SCHEDULEINVESTMENT DEMAND & SCHEDULE

Exp

ecte

d r

ate

of

retu

rn,

r, a

nd

real in

tere

st

rate

, i (p

erc

en

ts)

Investm

en

t(b

illion

s o

f d

ollars

)Investment

(billions of dollars)

2020

88

2020

Real Domestic Product, GDP(billions of dollars)

DDII

Ig

InvestmentInvestmentDemand CurveDemand Curve

InvestmentInvestmentScheduleSchedule

Ig independent of YIg independent of Y

20202020

Y1 Y2 Y3Y1 Y2 Y3

In constructing the AE graph, In constructing the AE graph, IIg will be independent [not influenced]g will be independent [not influenced]by income. Investment decisions are made months ahead.by income. Investment decisions are made months ahead.

2020

1. The most important determinant of consumer spendingmost important determinant of consumer spending is (wealth/indebtedness/income).2. As aggregate income increasesaggregate income increases, consumption and savingconsumption and saving both (increase/decrease).3. The (consumption/saving) schedule shows how much households plan to consumeplan to consume at various income levels.4. DissavingDissaving occurs where consumption (exceeds/is less than) Y.

5. If the consumption schedule shifts upwardconsumption schedule shifts upward [not caused by a tax change], the saving schedulesaving schedule will shift (upward/downward).

6. (The expectation of a recession/A change in consumer incomes/

An expected change in the price level) will not cause thenot cause the consumption curve to shiftconsumption curve to shift.

““Closed” and “private” [C+Closed” and “private” [C+IIg] g] “Simple Economy”“Simple Economy”

““Open” & “private” [C+Open” & “private” [C+IIg+Xn]g+Xn] ““Open” & “mixed” Open” & “mixed” [C+[C+IIg+G+Xn] g+G+Xn] “Complex E“Complex Economyconomy””C+C+IIg Ag Assumptionsssumptions:: NNo o internat. tradeinternat. trade or or “G”“G” ; no business saving; ; no business saving;depreciation & NFFIEUS are 0; PL is constant [Keynesian] [GDP = Ddepreciation & NFFIEUS are 0; PL is constant [Keynesian] [GDP = DII]]

ClosedClosed

APC=C/YAPC=C/Y APC = C/Y(DI)=$48,000/$50,000 = .96APC = C/Y(DI)=$48,000/$50,000 = .96 APS = S/Y(DI)= $2,000/$50,000 = .04APS = S/Y(DI)= $2,000/$50,000 = .04 11

APC = C/Y=$52,000/$50,000 = 1.04APC = C/Y=$52,000/$50,000 = 1.04 APS = S/Y= -$2,000/$50,000 = -.04APS = S/Y= -$2,000/$50,000 = -.04

11

APC - percentageAPC - percentage of of income (“Y”) consumed.income (“Y”) consumed.

AE=GDPAE=GDP

““High maintenanceHigh maintenanceEcon teacher”Econ teacher”

APS – percentageAPS – percentage of of income (“Y”) saved.income (“Y”) saved.

““Econ,Econ,Econ,Econ,

APS=S/YAPS=S/Y

APCAPC andand APAPSS

??

MPCMPC,, MPSMPS, , & the& the MMultiplierultiplier

**The The MME is the reciprocal of the MPSE is the reciprocal of the MPS..

The ““MM”” works like a concentric circle.

MPC - % change in Y consumed.MPC - % change in Y consumed. MPS - % change in Y saved.MPS - % change in Y saved.

MPC = C/ Y = $750/$1,000 = .75MPC = C/ Y = $750/$1,000 = .75MPS = S/ Y = $250/$1,000 = .25MPS = S/ Y = $250/$1,000 = .25MMultiplier [1/MPS]ultiplier [1/MPS]=1/.25=$1/.25 = “M” of =1/.25=$1/.25 = “M” of 44[MPC is important for G in policy making decisions.][MPC is important for G in policy making decisions.]

MMEE=1/MPS=1/MPS

The The First Round of First Round of GovernmentGovernment Spending Spending Causes The Causes The Biggest Biggest

SplashSplash MPC of 75%MPC of 75%G spends G spends $$200200 billion billion on the on the highwayshighways..

Highway workers save 25% of $200 Highway workers save 25% of $200 billion billion [$50 [$50 billion] & spend 75% or $150 billion on boats. billion] & spend 75% or $150 billion on boats.

Boat makers save 25% of $150 Boat makers save 25% of $150 bil.bil. [$37.50 bil.] [$37.50 bil.] & & spend 75%spend 75% or or $112.50 bil. $112.50 bil. on on iPod VideoiPod Videoss, , etcetc..

http://images.google.com/imgres?imgurl=http://boredboards.com/blog/wp-content/uploads/2006/06/iPod%2520video.jpg&imgrefurl=http://boredboards.com/&h=417&w=250&sz=23&hl=en&start=188&tbnid=fNcOMLemLWrrKM:&tbnh=125&tbnw=75&prev=/images%3Fq%3Dipod%2Bvideo%26start%3D180%26ndsp%3D20%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF-8%26sa%3DN

AE

AE[[ C

+Ig

+C

+Ig

+GG

]] (b

illion

s )

o45

o

AE[C+Ig]AE[C+Ig]

AEAE[C+Ig[C+Ig+G+G]]

GG = $15 Billion= $15 Billion


Incr

G $

15

Incr

G $

15

800800 860860 YrYr Y*Y*

MMEE = 1/MPS = 1/MPS, 1/.25 = $1/.25 = M, 1/.25 = $1/.25 = MEE of 4 of 4MMEE is 4 & we is 4 & we are are shortshort of of Y*[$860]Y*[$860] by by $60 billion$60 billion

Recess. Spending gapRecess. Spending gap

Recessionary GDP GapRecessionary GDP Gap

Real GDP

“M” = Y/ E = 60/15 = 4

Recess. GapRecess. Gap

+60+60

Now, let’s look at the Tax Multiplier [MT]

MMTT = MPC/MPS, .75/.25 = M = MPC/MPS, .75/.25 = MEE of 3 of 3MMTT is 3 is 3 & & wewe are are shortshort of of Y*[$860]Y*[$860] by by $60 billion$60 billion

With this situation, [short of Y* by $60 bil.],we would need to decrease taxes by $20billion, with a multiplier of 3.

3 x ? will close a $$6060 billion GDP gap billion GDP gap?

AE

AE[[ C

+Ig

+C

+Ig

+GG

]] (b

illion

s )

o45

o

AE[C+Ig]AE[C+Ig]

AEAE[C+Ig[C+Ig+G+G]]EquilibriumEquilibrium

Decr T

$20

Decr T

$20

800800 860860 YrYr Y*Y*

MMTT = MPC/MPS = MPC/MPS, .75/.25 = M, .75/.25 = MTT of 3 of 3MMTT is 3 & we is 3 & we are are shortshort of of Y*[$860]Y*[$860] by by $60 billion$60 billion

Recess. Spending gapRecess. Spending gap


Real GDP


+60+60

AE[C

+Ig

+GG

] (b

illion

s o

f d

ollars

)

o45

o

AE[C+IgC+Ig]

AE[C+IgC+Ig+G+G]

GG = $30 Billion= $30 Billion


+ 30 G

860860 Y*Y*

MMEE = 1/MPS, 1/.50 = $1/.50 = M = 1/MPS, 1/.50 = $1/.50 = MEE of 2 of 2MMEE is 2 & we is 2 & we are are shortshort of of Y*[$860] Y*[$860] by by $60 billion$60 billion

RRecess.ecess. Spending gap Spending gap

Real GDP


+60

“MM” = YY/ EE = 60/3060/30 = 22 Recessionary GDP GapRecessionary GDP Gap

800800YYRR

AE[C

+Ig

+GG

] (b

illion

s o

f d

ollars

)

o45

o

AE[C+Ig]AE[C+Ig]

AE[C+IgC+Ig+G+G]EquilibriumEquilibrium

Decr.

T by

$60

860860 Y*Y*

MMTT = MPC/MPS = MPC/MPS, .50/.50 = M, .50/.50 = MTT of 1 of 1MMTT is 1 & we is 1 & we are are shortshort of of Y*[$860] Y*[$860] by by $60 billion$60 billion

RRecess.ecess. Spending gap Spending gap

Real GDP


+60


800800YYRR

Now, letNow, let’s ’s looklookat correctingat correctingthis this $60 $60 billionbillion

recessionaryrecessionary gapgap with a tax with a taxcut. MPS=.5cut. MPS=.5

AE[C

+Ig

+GG

] (b

illion

s o

f d

ollars

)

o45

o

AEAE[C+IgC+Ig--GG]EquilibriumEquilibrium

840 840 880880 Y*Y* YYII

MMEE = 1/MPS = 1/MPS, 1/.50 = $1/.50 = M, 1/.50 = $1/.50 = MEE of 2 of 2MMEE is 2 & we is 2 & we are are beyond Y*[$840] beyond Y*[$840] by by $40 billion$40 billion

Inflationary Spending Inflationary Spending gap=$20 Bgap=$20 B

Inflationary GDP GapInflationary GDP Gap

Real GDP

AEAE [C+IgC+Ig+G+G]

Inflat. GapInflat. Gap

-40-40

2 x -? = -402 x -? = -40

-20 G-20 G

AE[C

+Ig

+GG

] (b

illion

s o

f d

ollars

)

o45

o

AEAE[C+IgC+Ig+G+G]EquilibriumEquilibrium

840 840 880880 Y*Y* YYII

MMTT = MPC/MPS = MPC/MPS, .50/.50 = , .50/.50 = MMTT of 1 of 1MMTT is 1 & we is 1 & we are are beyond Y*[$840] beyond Y*[$840] by by $40 billion$40 billion

Inflationary GDP GapInflationary GDP Gap

Real GDP

AEAE [C+IgC+Ig+G+G]

Inflat. GapInflat. Gap

-40-401 x -? = -401 x -? = -40

Incr T $40

Incr T $40

Now, with a Now, with a MMTT

of of 11, we would , we would need a need a taxtax increase increase of how much to of how much to close the close the $40 bil.$40 bil.inflationary gapinflationary gap??

$40 billion$40 billion tax increase tax increase

MPC MPC 1/MPS 1/MPS = = M MEE

.90.90 1/.101/.10 = = 1010

.80.80 1/.201/.20 = 5= 5

.75.75 1/.251/.25 = 4= 4

.60.60 1/.401/.40 = 2.5= 2.5

.50.50 1/.501/.50 = 2= 2

MME [ChangeE [Change in in G, Ig,G, Ig, or or Xn] = Xn] = 1/MPS1/MPS

MPCMPC MPC/MPSMPC/MPS = = M MTT

.90.90 MPC/.10MPC/.10 = = 9 9

.80.80 MPC/.20MPC/.20 == 4 4

.75.75 MPC/.25MPC/.25 == 3 3

.60.60 MPC/.40MPC/.40 = 1.5= 1.5.50.50 MPC/.50MPC/.50 == 11

MMT [Change in Taxes] = T [Change in Taxes] = MPC/MPSMPC/MPS

When the G gives a tax cut, the When the G gives a tax cut, the MMTT is smaller than the is smaller than the MMEE

because a fraction [because a fraction [MPSMPS] ] is savedis saved and only the and only the MPCMPC is is

initially spentinitially spent. So, the . So, the MMTT = = MPC/MPSMPC/MPS..

1. We will start at $500 equilibrium GDPstart at $500 equilibrium GDP on each.

2. Of the three itemsthree items (equilibrium GDP, change in expenditures, and MPC), you will be givengiven twotwo and if you know two you can always figurefigure out the 3out the 3rdrd. For instance if you knew that equilibrium GDP increased by $400 and the multiplier was 4, then the change in expenditures was obviously $100.

3. Except for 6, 9, 15, & 186, 9, 15, & 18, you will increase increase equilibrium GDPequilibrium GDP above $500above $500, because there is an increase in G, or a decrease in T, orincrease in G, or a decrease in T, or an equal increase in G&T.an equal increase in G&T. Ex: With MPC of .75 & therefore a Ex: With MPC of .75 & therefore a MME of 4, E of 4, an increase in G of $20 means $20 x 4 = $580an increase in G of $20 means $20 x 4 = $5804. On questions 6, 9, 15, & 186, 9, 15, & 18, you will decrease equilibriumdecrease equilibrium GDP below $500GDP below $500 because you are either decreasing G, decreasing G, increasing T, or there is an equal decrease in G & T.increasing T, or there is an equal decrease in G & T. Ex: With MPC of .75 & therefore a Ex: With MPC of .75 & therefore a MME of 4, a decreaseE of 4, a decrease in G of $20 means -$20 x 4 = $420.in G of $20 means -$20 x 4 = $420.

INSTRUCTIONS FOR THE NEXT FOUR AE SLIDESINSTRUCTIONS FOR THE NEXT FOUR AE SLIDES

AE

E1E1

E3E3

E2E2AE2AE2

AE1AE1

AE3AE3

500500RRecessionaryecessionary spending gap spending gap

Inflationary spending gapInflationary spending gap

RRecessionaryecessionary

GDP gapGDP gap

IInflationarynflationary

GDP gapGDP gap

$10$10MMEE____MMTT______MMBBBB______

$$100100 Y Y with with MMEE

___Y with ___Y with MMTT

___Y with___Y with MMBBBB

1190901010

.9.9??

1010

11 99

$$200200 Y with Y with MMEE

_____Y with _____Y with MMTT

_____Y with_____Y with MMBBBB

1501505050

____ Y with ____ Y with MMEE

____Y with ____Y with MMTT

____Y with____Y with MMBBBB

___ Y with ___ Y with MMEE


____Y with____Y with MMBBBB

121248486060

$12$12 $50$50

$20$20Change in Change in ExpendituresExpenditures

MPCMPC[So MPS &[So MPS &MMEE, , MMTT, , & & MMBBBB]]

Chg inChg inEquilibriumEquilibrium GDP GDP

The Multiplier & Equilibrium GDPThe Multiplier & Equilibrium GDP

[Give the correct equilibrium GDP [start from $500$500] using the MMEE, MMTT, MMBBBB]

45°45°

$500$500

AE1AE1AE2AE2AE3AE3

EE22

EE11

EE33

RecessionaryRecessionarySpending gapSpending gap

InflationaryInflationarySpending gapSpending gap

AEAE

MMEE=1/MPS =1/MPS [chg in G, Xg, or Xn][chg in G, Xg, or Xn] MMBBBB = 1 [G&T ] = 1 [G&T ]

MMEE____MMTT______MMBBBB______



.75.75.80.80

.50.50

1133

44

11

5544

22

1111

MMTT = MPC/MPS = MPC/MPS [Chg in T ] [Chg in T ]

[+G][+G] 1. 1. MMEE = ____ = ____[-T][-T] 2. 2. MMTT = ____ = ____[+G&T[+G&T] 3. ] 3. MMBBBB =____ =____

[+G][+G] 1. 1. MMEE = ____ = ____[-T][-T] 2. 2. MMTT = ____ = ____[+G&T][+G&T] 3. 3. MMBBBB =____ =____



MMEE’s’s[G,Ig,Xn][G,Ig,Xn]MPC MMPC M.90 = 10.90 = 10.87.5= 8.87.5= 8.80 = 5.80 = 5.75 = 4.75 = 4.60 =2.5.60 =2.5.50 = 2.50 = 2

540540520520520520

4040

20202020

MMTT’s’sMPC MMPC M.90 = 9.90 = 9.87.5= 7.87.5= 7.80 = 4.80 = 4.75 = 3.75 = 3.60 =1.5.60 =1.5.50 = 1.50 = 1

700700650650550550512512

548548560560 600600

510510590590

SS

3322







[[-G-G] 1. ] 1. MMEE = =______[[+T+T] 2. ] 2. MMTT = =______[[-G&T-G&T]3.]3.MMBBBB==______

2.52.51.51.5

11

505030302020

221111

50505050

8877

11

554411

757560601515

4433

11

300300100100

10109911

-200-200

300300

-180-180

320320

-20-20

480480

$100$100

$50$50

[[-G-G] 1. ] 1. MMEE = = ___ ___[[+T+T] 2. ] 2. MMTT = =______[[-G&T-G&T]3.]3.MMBBBB==______





550550530530520520

600600550550550550

460460

495495465465

575575560560515515

900900800800600600



____Y with ____Y with MMBBBB













-40-40-35-35-5-5

100100

$15$15 -$20-$20

-$5-$5$20$20

400400___ Y with ___ Y with MMEE



44 55 66

77 88 99

.60.60 .50.50 87.587.5

.80.80 .75.75 .9.9

Here are a few helpers… try the rest on your own







[[-G-G] 1. ] 1. MMEE = =______[[+T+T] 2. ] 2. MMTT = =______[[-G&T-G&T]3.]3.MMBBBB==______

2.52.51.51.5

11

12512575755050

20201919

11

383822

5544

11

443311

606045451515

2211

11

100100100100

887711

-80-80

420420

-70-70

430430

-10-10

490490

$100$100

$2$2

[+G][+G] 1.1. MMEE = ___= ___[-T][-T] 2.2. MMTT =___=___[+G&T][+G&T]3.3.MMBBBB=___=___





512.5512.5507.5507.5

505505

540540538538502502

550550

510510540540

560560545545515515

700700600600600600




505040401010

4040

$15$15 -$10-$10

$10$10$5$5

200200

1010 1111 1212

1313 1414 1515

__._ Y with __._ Y with MMEE

_.___Y with _.___Y with MMTT

__ with __ with MMBBBB

.60.60 .95.95 ????







.75.75 .50.50 87.587.5







Here are a few helpers… try the rest on your own




5544

11

443311

101099

11$8$8

[[-G-G] 1. ] 1. MMEE = = ___ ___[[+T+T] 2. ] 2. MMTT = =______[[-G&T-G&T]3.]3.MMBBBB==______



625625600600525525

532532524524508508

400400

490490410410




-$10-$10$25$25

1616 1717 1818

.80.80 .75.75 .9.9






____Y with ____Y with MMBBBB2525100100125125 3232

242488

-100-100-90-90-10-10

m e = 4 460 500 460 500 ae(c+ig 1 ) ae(c+ig) ae(c+ig 2 ) s y r y * y r y * 10 ig 390 470 550 630 390...

Documents

rate slide

real rate

investment real

ig ae c

c s slide

rate change

ig aec

consumption increase