Principles of macroeconomics 10e by case fair oster ch08

PRINCIPLES OF MACROECONOMICS PART III The Core of Macroeconomic Theory TENTH EDITION CASE FAIR OSTER © 2012 Pearson Education, Inc Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly ofTefft 11 PART III The Core of Macroeconomic Theory © 2012 Pearson Education, Inc Publishing as Prentice Hall of 41 III PART PART III The Core of Macroeconomic Theory The Core of Macroeconomic Theory © 2012 Pearson Education, Inc Publishing as Prentice Hall of 41 The level of GDP, the overall price level, and the level of employment —three chief concerns of macroeconomists—are influenced by events in three broadly defined “markets”: PART III The Core of Macroeconomic Theory Goods-and-services market Financial (money) market Labor market © 2012 Pearson Education, Inc Publishing as Prentice Hall of 41 PART III The Core of Macroeconomic Theory  FIGURE III.1 The Core of Macroeconomic Theory We build up the macroeconomy slowly In Chapters and 9, we examine the market for goods and services In Chapters 10 and 11, we examine the money market Then in Chapter 12, we bring the two markets together, in so doing explaining the links between aggregate output (Y) and the interest rate (r), and derive the aggregate demand curve In Chapter 13, we introduce the aggregate supply curve and determine the price level (P) We then explain in Chapter 14 how the labor market fits into the macroeconomic picture © 2012 Pearson Education, Inc Publishing as Prentice Hall of 41 Aggregate Expenditure and Equilibrium Output CHAPTER OUTLINE The Keynesian Theory of Consumption Other Determinants of Consumption Planned Investment (I) The Determination of Equilibrium Output (Income) PART III The Core of Macroeconomic Theory The Saving/Investment Approach to Equilibrium Adjustment to Equilibrium © 2012 Pearson Education, Inc Publishing as Prentice Hall The Multiplier The Multiplier Equation The Size of the Multiplier in the Real World Looking Ahead Appendix: Deriving the Multiplier Algebraically of 41 aggregate output The total quantity of goods and services produced (or supplied) in an economy in a given period PART III The Core of Macroeconomic Theory aggregate income The total income received by all factors of production in a given period In any given period, there is an exact equality between aggregate output (production) and aggregate income You should be reminded of this fact whenever you encounter the combined term aggregate output (income) (Y) aggregate output (income) (Y) A combined term used to remind you of the exact equality between aggregate output and aggregate income © 2012 Pearson Education, Inc Publishing as Prentice Hall of 41 The Keynesian Theory of Consumption consumption function The relationship between consumption and income  FIGURE 8.1 A Consumption Function for a Household PART III The Core of Macroeconomic Theory A consumption function for an individual household shows the level of consumption at each level of household income © 2012 Pearson Education, Inc Publishing as Prentice Hall of 41 PART III The Core of Macroeconomic Theory To explain aggregate spending behavior, economists speculate that an increase in aggregate income in a given period will result in an increase in aggregate consumption in all of the following instances, except: a When household wealth increases b When interest rates rise c When households form positive expectations about the future d None of the above In all of the cases above, aggregate consumption will rise © 2012 Pearson Education, Inc Publishing as Prentice Hall of 41 PART III The Core of Macroeconomic Theory To explain aggregate spending behavior, economists speculate that an increase in aggregate income in a given period will result in an increase in aggregate consumption in all of the following instances, except: a When household wealth increases b When interest rates rise c When households form positive expectations about the future d None of the above In all of the cases above, aggregate consumption will rise © 2012 Pearson Education, Inc Publishing as Prentice Hall 10 of 41 ... Inc Publishing as Prentice Hall of 41 The level of GDP, the overall price level, and the level of employment —three chief concerns of macroeconomists—are influenced by events in three broadly defined... In practice, the decisions of households on how much to consume in a given period are also affected by their wealth, by the interest rate, and by their expectations of the future Households with... Prentice Hall of 41 Aggregate Expenditure and Equilibrium Output CHAPTER OUTLINE The Keynesian Theory of Consumption Other Determinants of Consumption Planned Investment (I) The Determination of Equilibrium