International Economics
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Dominick-Salvatore-International-Economics
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= 1000. On the other hand, at Y < 1000, the excess of desired investment over desired saving represents an unintended or unplanned inventory disinvestment, and income and production rise toward Y E = 1000. Thus, the equilibrium level of national income is determined either at the intersection of the C (Y) + I function with the 45 ◦ line in the top panel or by the intersection of the S(Y) Salvatore c17.tex V2 - 10/26/2012 12:52 A.M. Page 545 17.2 Income Determination in a Closed Economy 545 and I functions in the bottom panel. In either case, the equilibrium level of national income is Y E = 1000, and we assume that it is smaller than the full-employment level of income. 17.2 B Multiplier in a Closed Economy If, for whatever reason, investment rises by 100 from I = 150 to I = 250, the total expenditure function shifts up by 100 from C (Y) + I to C (Y) + I (the broken line in the top panel of Figure 17.1) and defines equilibrium point E at Y E = 1400. Equivalently, an autonomous increase in investment causes the investment function to shift up from I = 150 to I = 250 (the broken line in the bottom panel) and intersect the saving function at point E , also defining the equilibrium level of national income at Y E = 1400. Starting from the original equilibrium point E in the bottom panel, as investment increases from I = 150 to I = 250, I > S and Y rises. The rise in Y induces S to rise. This continues until Y has risen sufficiently for induced S to equal the new and higher level of I . For this to occur, Y must rise by 400, from Y E = 1000 to Y E = 1400, as indicated by the new equilibrium point of E in the bottom (and top) panel(s). Thus, an increase in I of 100 results in an increase in Y of 400 in order to induce S to also rise by 100 and reach another equilibrium point. That is, I = S = MPS × Y so that Y = 1 MPS I Therefore, the multiplier (k ) is k = Y I = 1 MPS = 1 1 − MPC (17-4) That is, the closed economy Keynesian multiplier (k ) is equal to the inverse, or reciprocal, of the marginal propensity to save or to the reciprocal of 1 minus the marginal propensity to consume. Since 0 < MPS < 1, the multiplier is larger than 1. For example, in Figure 17.1, MPS = 1 / 4 and k = 4, so that the increase in I of 100 leads to an increase in Y of 400 and an induced rise in S also equal to 100. The reason income rises more than investment is as follows. When investment expen- ditures rise, producers expand production, hire more workers, use more capital and other factors of production. Since the income generated in the process of production equals the value of the output produced, increasing investment expenditures by 100 has the immediate effect of also increasing income by the same amount. But the recipients of this 100 increase in income will spend 3 Download 7.1 Mb. Do'stlaringiz bilan baham: |
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