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8. Determination of National Income and the role of Fiscal Policy

8. Determination of National Income and the role of Fiscal Policy. The Equilibrium Level of National Income. The circular flow of income. The circular flow of income. The circular flow of income. C d. The circular flow of income. C d. Incomes. The circular flow of income. C d.

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8. Determination of National Income and the role of Fiscal Policy

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  1. 8. Determination of National Income and the role of Fiscal Policy

  2. The Equilibrium Level ofNational Income • The circular flow of income

  3. The circular flow of income

  4. The circular flow of income Cd

  5. The circular flow of income Cd Incomes

  6. The circular flow of income Cd Incomes W = S + T + M

  7. The circular flow of income J = I + G + X Cd Incomes W = S + T + M

  8. The Equilibrium Level ofNational Income • Effect on national income of a change in injections and/or withdrawals • J>W : national income rises • W>J : national income falls • The Keynesian diagram: the withdrawals and injections approach • the withdrawals curve

  9. Deriving equilibrium national income W Cd, W, J O Y

  10. The Equilibrium Level ofNational Income • Effect on national income of a change in injections and/or withdrawals • J>W : national income rises • W>J : national income falls • The Keynesian diagram: the withdrawals and injections approach • the withdrawals curve • the injections curve

  11. Deriving equilibrium national income W J Cd, W, J O Y

  12. The Equilibrium Level ofNational Income • Effect on national income of a change in injections and/or withdrawals • J>W : national income rises • W>J : national income falls • The Keynesian diagram: the withdrawals and injections approach • the withdrawals curve • the injections curve • equilibrium

  13. Deriving equilibrium national income W a J b Cd, W, J O Y1 Y

  14. Deriving equilibrium national income c d Y2 Cd, W, J W J O Y

  15. Deriving equilibrium national income x Cd, W, J W J O Ye Y

  16. The Equilibrium Level ofNational Income • The Keynesian diagram: the income and expenditure approach • the 45° line

  17. Deriving equilibrium national income Y = Cd + W Cd, W, J W J O Y

  18. The Equilibrium Level ofNational Income • The Keynesian diagram: the income and expenditure approach • the 45° line • the expenditure curve

  19. Deriving equilibrium national income E = Cd + J Cd J Cd, W, J Y = Cd + W W J O Y

  20. The Equilibrium Level ofNational Income • The Keynesian diagram: the income and expenditure approach • the 45° line • the expenditure curve • equilibrium

  21. Deriving equilibrium national income e f Cd, W, J Y = Cd + W E = Cd + J Cd W J O Y1 Y

  22. Deriving equilibrium national income g h Cd, W, J Y = Cd + W E = Cd + J Cd W J O Y2 Y

  23. Deriving equilibrium national income z x Cd, W, J Y = Cd + W E = Cd + J Cd W J O Ye Y

  24. The Multiplier • The multiplier: introduction • the circular flow of income and effects of changes in injections • definition of the multiplier: ΔY/ΔJ • The withdrawals and injections approach • graphical analysis: shift in the J line

  25. The multiplier: (a) a shift in injections a Ye1 W, J W J1 O Y

  26. The multiplier: (a) a shift in injections b Ye2 W, J W J2 a J1 O Ye1 Y

  27. The multiplier: (a) a shift in injections Multiplier = DY / DJ = DY / DW = c-a / b-c DW DJ c DY W, J W b J2 J2 a J1 J1 O Ye1 Ye2 Y

  28. The Multiplier • The multiplier: introduction • the circular flow of income and effects of changes in injections • definition of the multiplier: ΔY/ΔJ • The withdrawals and injections approach • graphical analysis: shift in the J line • the formula : 1/mpw • or : 1/(1–mpcd)

  29. The multiplier: (a) a shift in injections Multiplier = DY / DJ = DY / DW = c-a / b-c = 1/mpw DW DJ c DY W, J W b J2 J2 a J1 J1 O Ye1 Ye2 Y

  30. The Multiplier • The multiplier: introduction • the circular flow of income and effects of changes in injections • definition of the multiplier: ΔY/ΔJ • The withdrawals and injections approach • graphical analysis: shift in the J line • the formula : 1/mpw • or : 1/(1–mpcd) • graphical analysis: shift in the W line

  31. The multiplier: (b) a shift in withdrawals W, J W1 a J O Ye1 Y

  32. The multiplier: (b) a shift in withdrawals c W, J W1 W2 a J O Ye1 Y Ye2

  33. The multiplier: (b) a shift in withdrawals Multiplier = DY / DW = c-a / a-b DW DY W, J W1 W2 a c J b O Ye1 Y Ye2

  34. The Multiplier • The multiplier: introduction • the circular flow of income and effects of changes in injections • definition of the multiplier: ΔY/ΔJ • The withdrawals and injections approach • graphical analysis: shift in the J line • the formula : 1/mpw • or : 1/(1–mpcd) • graphical analysis: shift in the W line • The income and expenditure approach

  35. The Multiplier • The multiplier: introduction • the circular flow of income and effects of changes in injections • definition of the multiplier: ΔY/ΔJ • The withdrawals and injections approach • graphical analysis: shift in the J line • the formula : 1/mpw • or : 1/(1–mpcd) • graphical analysis: shift in the W line • The income and expenditure approach • graphical analysis: shift in the E line

  36. The multiplier: (c) a shift in the expenditure curve Ye1 E, W, J Y E1 O Y

  37. The multiplier: (c) a shift in the expenditure curve E, W, J Y E2 E1 O Ye1 Ye2 Y

  38. The multiplier: (c) a shift in the expenditure curve Multiplier = DY / DJ = c-a / b-a c DY b DJ E, W, J Y E2 E1 a O Ye1 Ye2 Y

  39. The Keynesian Analysis of Unemployment and Inflation • 'Full-employment' national income • 'Gap' analysis • the deflationary gap

  40. The deflationary gap W, J W J O Ye Y

  41. The deflationary gap Deflationary gap c d W, J W J O Ye YF Y

  42. The deflationary gap W, J, E Y E O Ye YF Y

  43. The deflationary gap a b Deflationary gap W, J, E Y E O Ye YF Y

  44. The deflationary gap W, J, E Y E a b Deflationary gap W c J d O Ye YF Y

  45. The Keynesian Analysis of Unemployment and Inflation • 'Full-employment' national income • 'Gap' analysis • the deflationary gap • the inflationary gap

  46. The inflationary gap W, J W J O Ye Y

  47. The inflationary gap W, J W J O Ye YF Y

  48. The inflationary gap Inflationary gap g h W, J W J O Ye YF Y

  49. The inflationary gap W, J, E Y E O Ye Y

  50. The inflationary gap W, J, E Y E O Ye Y

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