not so simple multiplier... (1 Viewer)

[ToO LaZy ^*]

.....................shuddup.!..um..i knew that.

 

[kochou]

But how does that relate to equations like C = 100 + 0.8Y ?? I still don't get it

 

[Wild Dan Hibiki]

ok, so the 0.8 in the consumption function is the marginal propensity to consume. therefore 1 - 0.8 = mps. but the answer turns out to be 500 and im kinda lost now as well... lol oh wells

 

[kochou]

Hmm I think I'll jsut stick to the first way

 

[Wild Dan Hibiki]

the 2nd way is easier but i dun get why the answers are different
where are the smart kids?

 

[Rorix]

its because MPC/MPS are only relevant for increases in consumption/saving.

hence, marginal.

 

[Wild Dan Hibiki]

ehhh?
LOL im lost

 

[kochou]

So is MPC & MPS just for the multiplier? Cos that's what I'd always thought...

 

[ar5ena1]

Its

1
___
1-MPC

or

1
__
MPS

hence we have

MPS = 1-MPC

The answer to the above question, the past hsc one is 700.

S=I is right, however you can also do it like this:

C= 100(autonomous consumption) +0.8Y

0.8 = MPC , hence realise 1/1-MPC = 1/0.2 = 5 (mulitpler)

now we have to work out the injection to AD which is comprised of C+I, so we add C+I:

100+40 = 140

Then x it by the mulitpler

140x5 = 700

Now if we have autonomous consumption of 100 and investment of 40 we have stimulation of 140. Times that by 5 and if i'm not mistaken its 700.

 

[kochou]

ar5ena1 you're a genius!!

 

[kochou]

But the C+I bit is kinda confusing :/ So AD is the equilibrium level?

 

[Wild Dan Hibiki]

oooh i forgot to add the other equation

 

[Rorix]

oh i see, that method is quite bad though, but good enough for the simple calculations in HSC

(for those that don't follow it's Y=0, an injection of 100autonomous C and 40 investment, when considering the multiplier, gives you 700)

 

[ar5ena1]

AD:AS for equilibrum

or

injections:leakages

When there is a surplus in either one of those factors you get an effect.

For example if leakages is greater than injections the economy is contracting. Hence therefore if injections is greater than leakages then the economy is expanding.

Same thing applies for AD and AS.

 

[Rorix]

^ irrelevant

(as the questions dont deal with injections or leakages, you're inventing a leakage by letting Y=0)

 

[ar5ena1]

^ irrelevant

(as the questions dont deal with injections or leakages, you're inventing a leakage by letting Y=0)

"So AD is the equilibrium level?"

Was responding to that comment.

 

[rumour]

Its in equilibrium if:
AS=AS
C+I= C+S