43
Nov. 6 th , 2002 ECON 1 – Section 19 – Page 1 GSI: R. Estopina ECON 1 – Section 19 Demand and Output in the Short Run.
Nov
. 6th, 2
002
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
GSI
: R. Es
topi
na
ECO
N 1
–Se
ctio
n 1
9
Dem
and
and
Ou
tpu
t in
th
e Sh
ort
Ru
n.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
GSI
: R. Es
topi
naN
ov. 6
th, 2
002Co
ntac
t D
etai
lsG
SI:
Ram
on E
stop
ina
Off
ice
Hou
rs:
No
OH
th
is T
hu
rsda
y !!
Off
ice:
Eva
ns
50
8-7
Emai
l: es
topi
na@
haas
.ber
kele
y.ed
u
Han
dout
s (o
nly
sect
ions
104
& 1
33)
afte
r cl
ass
in:
http
://w
ww
.ocf
.ber
kele
y.ed
u/~
jayc
hen/
econ
1/
Plea
se r
ead:
Rea
d be
fore
dow
nlo
adin
g!.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
GSI
: R. Es
topi
naN
ov. 6
th, 2
002Se
ctio
n 19
Age
nda
Adm
inis
trat
ive
Stu
ff (
10 m
in)
Rec
ap Q
uiz
(10
min
)
Pro
blem
25.
6 (1
0 m
in)
Pro
blem
25.
7 (1
0 m
in)
Pro
blem
25.
9 (1
0 m
in)
Re-
cap
(2 m
in)
ECO
N 1
–Se
ctio
n 19
–Pa
ge 4
GSI
: R. Es
topi
naN
ov. 6
th, 2
002Ad
min
istr
ativ
e St
uff
PS
#3
rea
dy t
oday
fro
m E
con
-1
web
site
!!!
Du
e n
ext
Wed
nes
day
13
th.
Rem
embe
r, n
o cl
ass
nex
t M
onda
y!! -
Vet
eran
s D
ay H
olid
ay.
Opp
ortu
nit
y to
cat
ch-u
p an
d ge
t re
ady
for
Mid
term
.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 5
GSI
: R. Es
topi
naN
ov. 6
th, 2
002Re
view
of
Last
Lec
ture
-11
/4th
Chap
ter
25:
AD:
plan
ned
vsac
tual
spe
ndin
g.Co
nsum
ptio
n Fu
nctio
n an
d M
PCAu
tono
mou
s vs
Indu
ced
spen
ding
Keyn
esia
n M
odel
Assu
mpt
ions
Keyn
esia
n Cr
oss
Dia
gram
Shift
s in
AD
Equi
libriu
m O
utpu
tPo
tent
ial O
utpu
tG
aps
(rec
essi
onar
y/ex
pans
iona
ry)
Para
dox
of t
hrift
& m
ultip
lier
ECO
N 1
–Se
ctio
n 19
–Pa
ge 6
GSI
: R. Es
topi
naN
ov. 6
th, 2
002Re
cap
Qui
z -
1To
tal p
lann
ed s
pend
ing
on f
inal
goo
ds a
nd
serv
ice
is c
alle
d
1)to
tal s
pend
ing.
2)to
tal c
onsu
mpt
ion.
3)ag
greg
ate
expe
nditu
res.
4)ag
greg
ate
cons
umpt
ion.
5)ag
greg
ate
dem
and.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 7
GSI
: R. Es
topi
naN
ov. 6
th, 2
002Re
cap
Qui
z -
2A
firm
's a
ctua
l inv
estm
ent
will
exc
eed
its p
lann
ed
inve
stm
ent
whe
n
1)it
sells
less
tha
n it
plan
ned.
2)It
sel
ls m
ore
than
it p
lann
ed.
3)in
tere
st r
ates
ris
e.
4)in
tere
st r
ates
fal
l.
5)th
e ec
onom
y ex
perie
nces
an
unex
pect
ed
expa
nsio
n.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 8
GSI
: R. Es
topi
naN
ov. 6
th, 2
002Re
cap
Qui
z -
3
The
larg
est
com
pone
nt o
f ag
greg
ate
dem
and
is
1)co
nsum
ptio
n.
2)in
vest
men
t.
3)go
vern
men
t pu
rcha
ses.
4)ex
port
s.
5)im
port
s.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 9
GSI
: R. Es
topi
naN
ov. 6
th, 2
002Re
cap
Qui
z -
4
The
obje
ctiv
e of
sta
biliz
atio
n po
licie
s is
to
1)af
fect
agg
rega
te s
uppl
y.
2)el
imin
ate
outp
ut g
aps.
3)in
crea
se p
oten
tial G
DP.
4)ke
ep in
flatio
n co
nsta
nt.
5)ca
use
busi
ness
cyc
les
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
0G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Re
cap
Qui
z -
5
The
valu
e of
the
MPC
is a
ssum
ed t
o be
1)le
ss t
han
1.
2)gr
eate
r th
an 1
.
3)le
ss t
han
0.
4)eq
ual t
o 1.
5)co
nsta
nt.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
1G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Im
port
ant
to r
emem
ber:
Equ
atio
n 1
of
the
day:
Agg
rega
te D
eman
d (A
D):
tota
l pla
nned
spen
ding
on
final
goo
ds a
nd s
ervi
ces.
NX
GI
CAD
p+
++
=
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
2G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Im
port
ant
to r
emem
ber
(2)
Rem
embe
r: P
lann
edm
ay d
iffer
fro
m
actu
al fo
r fir
ms:
diff
eren
ce is
cha
nge
in
inve
ntor
ies.
Firm
sel
ls le
ss t
han
expe
cted
: in
vent
orie
s gr
ow
(Inc
reas
e in
inve
ntor
ies
is c
ount
ed a
s ac
tual
in
vest
men
t)
I>
Ip
Firm
sel
ls m
ore
than
exp
ecte
d: in
vent
orie
s de
clin
e Ip
> I
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
3G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Im
port
ant
to r
emem
ber
(3)
Com
pon
ents
of
AD
.A)
CO
NSU
MPT
ION
FU
NCT
ION
: T)
c(Y
CC
−+
==
con
stan
t te
rm c
aptu
ring
fact
ors
othe
r th
an d
ispo
sabl
e in
com
ec
= M
PC
(m
argi
nal p
rope
nsity
to
cons
ume)
: am
ount
C r
aise
s w
hen
disp
osab
le in
com
e ris
es;
assu
me
0 <
c<
1
C
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
4G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Im
port
ant
to r
emem
ber
(4)
B) R
est
of f
acto
rs a
re e
xoge
nous
.
TT
XN
NX
GG
IIp
=
=
==
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
5G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Im
port
ant
to r
emem
ber
(5)
Com
bini
ng a
ll eq
uatio
ns:
XN
GI
TYc
CAD
NX
GI
CAD
p
++
+−
+=
++
+=
)(
Com
pose
d of
:A
uto
nom
ous
AD
& I
ndu
ced
AD
cY)
XN
GI
Tc-
C(
AD+
++
+=
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
6G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Im
port
ant
to r
emem
ber
(6)
In e
quili
briu
m Y
= A
D, s
o:
Mul
tiplie
r:
cY)
XN
GI
Tc-
C(
Y+
++
+=
)X
NG
IT
c-
C(
Y+
++
−=
c11
MPC
c−
=−
=1
111
Mult.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
7G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Bo
x 25
.2 (
F&B
page
667
)Fr
om E
xam
ple
25.2
(F&
B pa
ge 6
64)
we
have
:=
620
/c =
0.8
/
= 2
20 /
=
300
/
=20
/
=25
0
We
know
the
def
initi
on o
f Ag
greg
ate
Dem
and
is:
AD
= C
+ I
p+
G +
NX
And,
in t
he S
HO
RT
RU
N:
250
TT
20
XN
NX
300
GG
220
II
T)
0.8(Y
620
T)
c(Y
CC p
==
==
==
==
−+
=−
+=
CI
GX
NT
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
8G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Bo
x 25
.2 (
Conc
lusi
on)
Subs
titut
ing
the
com
pone
nts:
AD
= [
62
0 +
0.8
(Y-2
50
)] +
22
0 +
20
0 +
20
And
final
ly:
AD
= 9
60 +
0.8
YIn
add
ition
, fro
m t
he s
hort
ter
m e
quili
briu
m:
Y=AD
So t
he p
revi
ous
equa
tion
will
be:
Y =
96
0 +
0.8
YSo
lvin
g fo
r Y: Y
= 9
60
/ 0.
2 =
4,8
00
ECO
N 1
–Se
ctio
n 19
–Pa
ge 1
9G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
6 (F
&B
page
684
)Fo
r th
e fo
llow
ing
econ
omy,
fin
dAu
tono
mou
s ag
greg
ate
dem
and
The
mul
tiplie
rSR
equ
ilibr
ium
ou
tput
O
utpu
t ga
p.12,000
*
Y
2,000
TT
200
XN
NX
2,500
GG
1,500
II
T)
0.5(Y
3,000
C p
==
=
==
==
==
−+
=
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
0G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
6 (c
ont’
d)A)
The
rel
atio
nshi
p be
twee
n ag
greg
ate
dem
and
and
outp
ut is
giv
en b
y:
YAD
YAD
NX
GI
CAD
p
5.06200
200
2500
1500
)2000
(5.03000
+=
++
+−
+=
++
+=
Auto
nom
ous
aggr
egat
e de
man
d eq
uals
620
0,
the
part
of
aggr
egat
e de
man
d th
at d
oes
not
depe
nd o
n ou
tput
.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
1G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
6 (c
ont’
d)
To f
ind
shor
t-ru
n eq
uilib
rium
out
put,
use
th
e eq
uatio
n Y
=A
Dan
d so
lve
for
Y:
400
,126200
5.05.0
6200
==
+==
YY
YY
ADY
Wha
t is
the
Out
put
Gap
?Rem
embe
r la
st c
lass
: Y
*-Y
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
2G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
6 (c
ont’
d)
So w
e ha
ve:
SR e
quili
briu
m o
utpu
t (Y
) =
12,
400
Pote
ntia
l out
put
(Y*)
= 1
2,00
0O
utpu
t ga
p is
= –
400.
Is t
his
a re
cess
iona
ry o
r ex
pans
iona
ry
gap? Ex
pans
iona
ry, Y
> Y
*
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
3G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
6 (c
ont’
d)Th
e m
ultip
lier
can
be f
ound
by
the
form
ula
of t
he m
ultip
lier
(obv
ious
ly)
=
1/(1
-c)
20.5
1
1
c1
1=
−=
−
Ther
e is
ano
ther
way
to
solv
e it
(mor
e co
mpl
icat
ed),
but
I k
now
you
are
cur
ious
.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
4G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
6 (c
ont’
d)Im
agin
e th
at a
uton
omou
s ag
greg
ate
dem
and
rises
fro
m 6
200
to 6
300.
Now
the
equ
atio
n Y=
AD b
ecom
esY
= 6
,30
0 +
0.5
YSo
lvin
g fo
r ou
tput
yie
lds
Y =
12
,60
0, a
n in
crea
se o
f 20
0 ov
er t
he s
olut
ion
foun
d be
fore
. W
e ha
ve s
how
n th
at a
n in
crea
se in
au
tono
mou
s ag
greg
ate
dem
and
of 1
00
rais
es s
hort
-run
equ
ilibr
ium
out
put
by 2
00.
Ther
efor
e th
e m
ultip
lier
mus
t eq
ual 2
.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
5G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
6 (C
oncl
usio
n)
By h
ow m
uch
wou
ld a
uton
omou
s AD
hav
e to
cha
nge
to e
limin
ate
the
outp
ut g
ap?
As t
he m
ultip
lier
is 2
, to
elim
inat
e th
e ou
tput
ga
p of
–40
0, a
uton
omou
s ag
greg
ate
dem
and
wou
ld h
ave
to c
hang
e by
–20
0, t
hat
is,
auto
nom
ous
aggr
egat
e de
man
d w
ould
hav
e to
fal
l. If
aut
onom
ous
aggr
egat
e de
man
d fa
lls fro
m
6200
to
6000
, the
n sh
ort-
run
equi
libriu
m
outp
ut e
qual
s 12
,000
and
the
out
put
gap
is
elim
inat
ed.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
6G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
7 (F
&B
page
685
)
Follo
win
g w
ith t
he p
revi
ous
prob
lem
but
now
= 0
.A)
Wha
t w
ould
be
the
SR e
quili
briu
m o
utpu
t?W
e pr
ocee
d as
bef
ore:
YAD
YAD
NX
GI
CAD
p
5.06000
02500
1500
)2000
(5.03000
+=
++
+−
+=
++
+=X
N
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
7G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
7 (c
ont’
d)
Then
we
appl
y th
e de
finiti
on o
f sh
ort-
run
equi
libriu
m o
utpu
t, Y
= A
D.
000
,126000
5.05.0
6000
==
+==
YY
YY
ADY
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
8G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
7 (c
ont’
d)
B) E
cono
mic
rec
over
y ab
road
incr
ease
s th
e de
man
d fo
r th
e co
untr
y’s
expo
rts.
As
a re
sult
= 1
00.
Wha
t ha
ppen
s to
the
SR E
quili
briu
m
Out
put?
XN
ECO
N 1
–Se
ctio
n 19
–Pa
ge 2
9G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
7 (c
ont’
d)An
incr
ease
of by
100
impl
ies
that
au
tono
mou
s ag
greg
ate
dem
and
rises
by
100,
so
now
we
have
:
So t
he in
crea
se in
net
exp
orts
of 10
0 ha
s in
crea
sed
outp
ut b
y 20
0.
200
,126100
5.05.0
6100
5.06100
==
+==
+=
YY
YY
ADY
YAD
XN
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
0G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
7 (c
ont’
d)
C) N
ow a
ssum
e fo
reig
n ec
onom
ies
are
slow
ing
and
the
dem
and
for
the
coun
try’
s ex
port
s is
red
uced
. As
a r
esul
t =
-100
.W
hat
happ
ens
to t
he S
R E
quili
briu
m
Out
put?
XN
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
1G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
7 (c
ont’
d)A
decr
ease
of
by
100
impl
ies
that
aut
onom
ous
aggr
egat
e de
man
d fa
lls b
y 10
0, s
o no
w w
e ha
ve:
So t
he d
eclin
e in
net
exp
orts
of
100
low
ers
outp
ut b
y 20
0.
800
,115900
5.05.0
5900
5.05900
==
+==
+=
YY
YY
ADY
YAD
XN
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
2G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
7 (C
oncl
usio
n)H
ow t
hese
res
ults
hel
p ex
plai
n th
e te
nden
cy o
f re
cess
ions
and
exp
ansi
ons
to s
prea
d ac
ross
co
untr
ies?
The
exam
ple
show
s th
at a
wea
k ec
onom
y in
one
co
untr
y, b
y re
duci
ng t
hat
coun
try’
s im
port
s fr
om a
se
cond
cou
ntry
, can
cre
ate
econ
omic
wea
knes
s in
th
e se
cond
cou
ntry
as
wel
l.Si
mila
rly, a
n ex
pans
ion
that
incr
ease
s a
coun
try’
s pu
rcha
ses
of f
orei
gn p
rodu
cts
stre
ngth
ens
the
econ
omie
s of
its
trad
e pa
rtne
rs.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
3G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (F
&B
page
685
)
For
the
follo
win
g ec
onom
y, f
ind
how
muc
h w
ould
G
ov. p
urch
ases
ha
ve t
o ch
ange
to
elim
inat
e an
y ou
tput
gap
(th
is
is f
isca
l pol
icy)
.580
*
Y
150
TT
10
XN
NX
120
GG
70
II
T)
0.8(Y
40
C p
==
=
==
==
==
−+
=
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
4G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (c
ont’
d)
We
solv
e fo
r sh
ort-
run
equi
libriu
m
outp
ut v
ia t
he u
sual
tw
o st
eps.
Firs
t, f
ind
the
rela
tions
hip
of a
ggre
gate
de
man
d to
out
put:
YAD
YAD
NX
GI
CAD
p
8.0120
10120
70)
150
(8.040
+=
++
+−
+=
++
+=
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
5G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (c
ont’
d)Se
cond
, use
the
con
ditio
n Y
= A
Dto
so
lve
for
shor
t-ru
n eq
uilib
rium
out
put:
600120
2.08.0
120
==
+==
YY
YY
ADY
The
outp
ut g
ap is
Y*-
Y =
580
-600
= -
20,
so t
here
is a
n ex
pans
iona
ry g
ap o
f 20
.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
6G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (c
ont’
d)
To a
nsw
er t
he q
uest
ion
abou
t th
e ef
fect
s of
fis
cal p
olic
y w
e ne
ed t
o kn
ow
the
mul
tiplie
r fo
r th
is e
cono
my.
In t
his
case
:
58.0
11
11
=−
=−c
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
7G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (c
ont’
d)
Now
we
can
find
the
appr
opria
te f
isca
l po
licie
s to
elim
inat
e th
e ou
tput
gap
.Be
caus
e ac
tual
out
put
exce
eds
pote
ntia
l ou
tput
by
20, a
nd t
he m
ultip
lier
is 5
, a
decr
ease
of
4 in
gov
ernm
ent
purc
hase
s (f
rom
120
to
116)
will
elim
inat
e th
e ou
tput
gap
.Yo
u ca
n ve
rify
this
dire
ctly
by
sett
ing
=11
6 an
d re
-sol
ving
for
sho
rt-r
un
equi
libriu
m o
utpu
t.G
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
8G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (c
ont’
d)
By h
ow m
uch
wou
ld t
axes
hav
e to
cha
nge?
(A
ssum
e M
PC =
0.8
)Fo
r th
e ca
se o
f a
tax
chan
ge w
e ha
ve t
o be
car
eful
. A
chan
ge in
tax
es o
f ∆T
does
not
cha
nge
auto
nom
ous
aggr
egat
e de
man
d by
∆T,
bec
ause
con
sum
ers
do n
ot
spen
d 10
0% o
f an
y ta
x cu
t (o
r re
duce
spe
ndin
g by
10
0% o
f an
y ta
x in
crea
se).
A ch
ange
in t
axes
of ∆T
inst
ead
chan
ges
auto
nom
ous
aggr
egat
e de
man
d by
c∆T
, whe
re c
is t
he m
argi
nal
prop
ensi
ty t
o co
nsum
e (M
PC)
out
of d
ispo
sabl
e in
com
e.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 3
9G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (c
ont’
d)
In t
he c
ase
of g
over
nmen
t sp
endi
ng, e
limin
atin
g th
e ou
tput
gap
req
uire
s re
duci
ng a
uton
omou
s ag
greg
ate
dem
and
by 4
.To
red
uce
auto
nom
ous
aggr
egat
e de
man
d by
4
via
a ta
x ch
ange
, Gov
. will
incr
ease
tax
es b
y 5.
Si
nce
the
MPC
= 0
.8, a
tax
incr
ease
of 5
will
lead
co
nsum
ers
to r
educ
e th
eir
spen
ding
by
4, a
s de
sire
d.
You
can
also
ver
ify it
by
sett
ing
=11
5 an
d so
lvin
g fo
r sh
ort-
run
equi
libriu
m o
utpu
t.T
ECO
N 1
–Se
ctio
n 19
–Pa
ge 4
0G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (c
ont’
d)W
hat
happ
ens
if no
w Y
*=63
0?If
pot
entia
l out
put
is 6
30, t
hen
the
outp
ut g
ap is
Y*-
Y=30
, th
at is
, the
re is
a r
eces
sion
ary
gap
of 3
0.
As t
he m
ultip
lier
is 5
, thi
s ga
p ca
n be
elim
inat
ed b
y ra
isin
g go
vern
men
t pu
rcha
ses
by 6
.
An
incr
ease
in
shif
ts t
he
expe
ndi
ture
lin
e u
pwar
ds.
AD
Ou
tpu
tY
*=
63
06
00
Y=
AD A
D=
12
0+
0.8
Y
AD
=1
26
+0
.8Y
G
ECO
N 1
–Se
ctio
n 19
–Pa
ge 4
1G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
25.
9 (C
oncl
usio
n)
Alte
rnat
ivel
y, c
ut t
axes
by
6/0.
8 =
7.5
.
Beca
use
the
MPC
is 0
.8, a
cut
in t
axes
of
7.5
will
als
o st
imul
ate
auto
nom
ous
aggr
egat
e de
man
d by
6 a
nd o
utpu
t by
6*
5 =
30.
Th
e Ke
ynes
ian
cros
s di
agra
m in
thi
s ca
se
show
s th
e ex
pend
iture
line
ris
ing
too,
ra
ther
tha
n fa
lling
, to
rest
ore
Y=Y*
.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 4
2G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Prob
lem
s fo
r ne
xt s
ectio
ns !
!!
For
next
sec
tion:
Ch
apte
r 2
6:
Pro
blem
s 3
, 8, 9
.
Rem
embe
r: T
his
is n
ot m
anda
tory
.It
won’t
be
grad
ed. O
nly
for
thos
e of
you
tha
t ne
ed im
prov
emen
t in
Ex
am g
rade
s.
ECO
N 1
–Se
ctio
n 19
–Pa
ge 4
3G
SI:
R. Es
topi
naN
ov. 6
th, 2
002Nex
t cl
ass
Nex
t Cl
ass:
Sect
ion
20 –
Wed
nesd
ay, N
ov 1
3th
No
clas
s n
ext
Mon
day
. Vet
eran
s D
ay H
olid
ay.
Du
e P
S#4
!!!!
If
you
wan
t m
ore
prac
tice,
wor
k on
Nex
t Se
ctio
ns
Prob
lem
s (a
lthou
gh y
ou p
roba
bly
have
eno
ugh)
.Rea
d ch
. 26
& 2
7.Yo
u ca
n do
wnl
oad
hand
outs
thi
s af
tern
oon.
Than
k yo
u fo
r co
min
g on
tim
e !!
!
Enjo
y th
e lo
ng w
eeke
nd &
C-U
Wed
nesd
ay !
!.
