1. Chapter 9: THE DETERMINATION OF NATIONAL INCOME Economics 11-UPLB Prepared by TBParis 09/12/07

11. 0 100 100 45 0 line 45 0 200 200

12. 45º E 0 AE 20 AE 0 20 Output, income (in pesos) Aggregate expenditure (in pesos) Y Y*

15. 45° AE 0 E 0 E 1 AE 1 20 30 AE 0 20 30 Y Output, income (in pesos) Aggregate expenditure (in pesos) Y 0 Y 1

17. 0.75 150 200 1,400 1,600 0.75 150 200 1,250 1,400 0.75 150 200 1,100 1,200 0.75 150 200 950 1,000 0.75 150 200 800 800 0.75 150 200 650 600 0.75 150 200 500 400 0.75 150 200 350 200 _ — — 200 0 (∆C/∆Y) (∆C) (∆Y) (C) (Y) mpc Change in consumption Change In income Consumption Income (5) (4) (3) (2) (1) TABLE 9.1. Consumption and income (in pesos).

19. 0 45 0 200 Consumption Spending (in pesos) Output, Income (in pesos) 400 600 800 1000 800 1200 1600 400 1200 1400 1600 C Y THE CONSUMPTION SCHEDULE Y

25. Relationship bet. Income and Savings 0.25 50 150 200 200 1400 1600 0.25 50 150 200 150 1200 1400 0.25 50 150 200 100 1000 1200 0.25 50 150 200 50 950 1000 0.25 50 150 200 0 800 800 0.25 50 150 200 -50 650 600 0.25 50 150 200 -100 500 400 0.25 50 150 200 -150 350 200 - - - - -200 200 0 ∆ S ∆ Y ∆ S ∆ C ∆ Y S C Y MPS (6) (5) (4) (3) (2) (1)

29. Relationship between mpc and mpc

30. S -200 -50 150 0 400 800 1,200 1,600 Income (in pesos) Savings (in pesos) Y S F9.4 Propensity to Save

32. Table 9.3 Consumption, Investment and Equilibrium Income. 1,350 100 150 1,250 1,400 1,200 100 100 1,100 1,200 1,050 100 50 950 1,000 900 100 0 800 800 750 100 -50 650 600 600 100 -100 500 400 AE I S C Y

33. E 0 S I -200 100 0 800 1,200 1,600 Income (in pesos) Y Y* (B) S, I (A) E 0   Fig 9.5 C+I = AE C 0 400 800 1,200 1,600 Y 45º AE 300 200  Y* 

35. Table 9.4 Effects of a 100 peso increase in investment. 1750 200 250 1550 1800 1600 200 200 1400 1600 1450 200 150 1,250 1,400 1300 200 100 1,100 1,200 1150 200 50 950 1,000 1000 200 0 800 800 850 200 -50 650 600 700 200 -100 500 400 AE I S C Y

36. Aggregate Expenditure (in pesos) AE 0 AE 1 Y 0 Y* 0 Y* 1 A B E 1 E 0 1200 1600 ∆ I=100 The effect of an increase in investment AE Y 45 o 300 400 ∆ Y=400

40. The multiplier concept … … … … mpc n-1 •100 0 mpc•[ mpc n-2 •100] n mpc 2 •100 0 mpc• [mpc•100] 3 mpc•100 0 mpc•[100] 2 100 100 0 1 ∆ Y ∆ I = ∆ C + Round

41. Calculation of the multiplier:

44. The Multiplier

46. S 0 Income (in pesos) Savings (in pesos) Y S,I S 1 I Y 0 Y 1 Fig 9.7 0 The Paradox of Thrift

47. End Chapter 9: