keynesian analysis of macroeconomic equilibrium
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CHAPTER
Keynesian Analysis of
Macroeconomic Equilibrium
recessions, inflation,and the multiplier
Copyright 2010 Pearson Education, Inc. All rights reserved. 1
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Box 2. Equilibrium Real GDP and
Income in a Given Year
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Macroeconomic Equilibrium
In equilibrium, real GDP equals aggregatepurchases.
Assuming no government and no
international trade, equilibrium requires thatC+ S= C + IP.
Saving must equal planned investment in
equilibrium,S
=
IP.
Recessions can be caused by declines in
aggregate purchases.
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Box 5. How a Decline in Aggregate Purchases in a
Given Year Causes a Recessionary GDP Gap
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The Multiplier
Multiplier = Change in real GDP/Change inautonomous purchases.
Multiplier = 1/(1 Marginal respending rate).
When theres no government and nointernational trade, MPC is the marginal
respending rate.
With government and international trade, the
marginal tax rate and marginal propensity to
import must be taken into account when
calculating the marginal respending rate.
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Inflation and Aggregate Purchases
When aggregate purchases increase, an
inflationary GDP gap can open up.
When equilibrium real GDP exceeds potentialreal GDP, the price level will rise and the
aggregate purchases line will shift down until
equilibrium real GDP = Potential real GDP.
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Box 11. An Inflationary GDP Gap
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Box 10. Deriving an Aggregate Demand Curve
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Box 1. Aggregate Production, Aggregate
Purchases, and Determination of
Macroeconomic Equilibrium Real GDPin a Simple Economy
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Box 3. Saving and Investment and Macroeconomic
Equilibrium
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Box 4. Macroeconomic Equilibrium: The Response
to a Decline in Planned Investment
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Box 6. Macroeconomic Equilibrium: The Response
to a Decline in Consumer Spending
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Box 7. The Multiplier Process
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Box 8. The Multiplier Effect and
Macroeconomic Equilibrium
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Box 9. Government Spending, International Trade,
and Macroeconomic Equilibrium
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The Global Economy
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Appendix Box 1. Aggregate Production, Aggregate
Purchases, and Macroeconomic
Equilibrium
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