Eco Growth: Equilib level of national Y (1 Viewer)

[-pari-]

could someone please take a look & help me out? i'm having issues. :mad1:


hmkay, so am lookin at the graph, for the equilibrium level of national income (in case any1's that interested --> tim riley 2006 page 154...the one with expenditure on the vertical axis, income on the horizontal, showing where AD intersects AS )


1a) Agg Demand function (by which i'm guessing it means AD= C + I + G + (X-M) ...amirite?) can be represented graphically by adding the consumption and investment functions together.
k, so thats because AD = Y = C + I ...?

b) And since investment is always autonomous, (thats another thing...how is investment autonomous? if you have little income you invest ..little...right? ) so since its supposedly always autonomous, all you have to do is shift the consumption graph up a notch.....(rite?)


2) The agg supply function is represented by the 45degree line ...(why 45degreees? To me...that looks so random. ) ...which is a locus of equilibrium points where Y=E=O. (meaning that every point on the AS line is an equilibrium point for some value of income & expenditure/output......?)

and finally.....

3) when you graphically represent investment [on the savings/leakages graph] ...why is it a flat line? Doesn't level of investment change?

...

 

[Sparcod]

1a) Agg Demand function (by which i'm guessing it means AD= C + I + G + (X-M) ...amirite?) can be represented graphically by adding the consumption and investment functions together.
k, so thats because AD = Y = C + I ...?

Yes, it is...AD=C+I+G+X-M but graphically, income varies with consumption whereas the others i.e invest. stay constant

b) And since investment is always autonomous, (thats another thing...how is investment autonomous? if you have little income you invest ..little...right? ) so since its supposedly always autonomous, all you have to do is shift the consumption graph up a notch.....(rite?)

that decimal number in front of "Y" is related to the gradient. The investment part (usually it's investment +(somenumber)Y =Y) is a large number and tells you where the y-axis is cut at.

2) The agg supply function is represented by the 45degree line ...(why 45degreees? To me...that looks so random. ) ...which is a locus of equilibrium points where Y=E=O. (meaning that every point on the AS line is an equilibrium point for some value of income & expenditure/output......?)

45 degrees, maybe Y=C?

when you graphically represent investment [on the savings/leakages graph] ...why is it a flat line? Doesn't level of investment change?

Usually one factor changes at a time.

 

[-pari-]

Thanks

 

[-pari-]

Question: [about the simple multiplier...]

eg. investment increases by $10 000, so initial increase of agg demand is $10 000.
the multpilier process ensures that national income will ultimately rise by much more than $10 000

but, essentially....isn't it just $10 000 that will be the increase and the rest is just part of that $10 000...part of that initial injection...? Not "extra" ?

So it doesn't really generate "more" income ....it just flows around the economy a number of times, so you get more economic activity out of that same amount of money......
amirite?

 

[-pari-]

...mkay...i think its starting to sink in...
cheers

...oh btw...what about agg supply? say agg supply increased by an initial $10 000....
would there be flow on effects of this?

or would that just lead to higher inflation?

 

[Sparcod]

I 4 got this crap. If supply is greater than demand, is that deflation?