Equilibirum Flashcards
Explain what happens when Y> Yeq?****
Y>Yeq = Y(of production) >PAE(Y)
A. 🔺 inventory > Planned 🔺 in Inventory
So we want to decrease production so that Y decreases because that’s means that we don’t want to invest a lot as a firm an
Explain what happens when Y
Y
Explain what happens when Y = Yeq?
Y = Yeq—> Y = PAE (Y)
🔺Inventory=Planned🔺Inventory
Equilibrium Math PQ: C=30+(4/5)YD Y0=Y(no tax assumption) -I = 75 What is Yeq?
PAE = C+I
= _c + mpcYD + I
= 30 + (4/5)YD + 75
PAE = 105 + 4/5Y
EQ: where Y = PAE
Y = 105 + (4/5)Y
Y (1- (4/5)) = 105
Yeq = 105/(1/5) = 525
What constitutes better institutions? And whose concept do we use for that?
G
What are national savings, public savings, and private savings?
All national aggregates which measure the level of savings of all private individuals within an economy
What are public savings?
Tells us how much the govt is saving & is defined as the difference between how much money the govt. collects in tax revenue minus its spending (G) sort of like income tax minus consumption also called govt. & can be (+,-,0)
t-G
When are govt savings positive vs.negative vs. 0?
(+): T > G, so it’s a Budget Surplus
(-): T < G, so it’s a Budget Deficit
(0): T = G, so it’s a balanced budget
What are private savings?
Tells us how much all the people who reside in an economy are saving
Income + transfers - Tax - how much they spent on consumption
Y-T-C
How much income is left over after all private citizens have paid Texas and bought everything they want
What are national savings?
Combination of private & public and it tells the total level of savings in an economy.
S=T-G+Y-T-C
What is net foreign investment?
Also known as net capital outflow = total amount of investment overseas done by people in the domestic economy basically net exports.
