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LECTURE 5 MONETARY FINANCED GOVERNMENT DEBT

LECTURE 5 MONETARY FINANCED GOVERNMENT DEBT. THE MACRO ECONOMIC MODEL Introduction to Economics Class Notes Fall 2000 Charles R. Plott California Institute of Technology. I. a. Spending. I 1. I 1 +a 1. Y 1. Y 2. Y. i. i. i. i. a. Y. M/P. I. I 1. a 1. MD T. MD T. Y. M/P.

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LECTURE 5 MONETARY FINANCED GOVERNMENT DEBT

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  1. LECTURE 5 MONETARY FINANCED GOVERNMENT DEBT

  2. THE MACRO ECONOMIC MODEL Introduction to Economics Class Notes Fall 2000 Charles R. Plott California Institute of Technology

  3. I a Spending I1 I1+a1 Y1 Y2 Y i i i i a Y M/P I I1 a1 MDT MDT Y M/P P P P P* Y M*/P* M/P W/P Y UNKNOWNS .Y income .C consumption .I investment .i interest rate .P price level .L employment .MD money demand .MDT transaction demand for money .MDS speculative demand for money .w nominal wages level GIVENS G Government spending X net exports M nominal money supply b marginal propensity to consume EQUATIONS .Y=C+I+G+X .C=a(i)+bY .I=I(i) .M/P = MD .MD=MDT+MDS .MDT = MDT(Y) .MDS = MDS(i) .DL(w/P)-SL(w/P)=0 .L=SL(w/P) .Y=F(L,..)

  4. EXERCISE #5 THERE IS AN INCREASE IN GOVERNMENT DEFICIT EXPENDITURES FINANCED BY THE FEDERAL RESERVE SYSTEM

  5. I a Spending I1 I1+a1 Y1 Y2 Y i i i i a Y M/P I I1 a1 MDT MDT Y M/P P P P P* Y M*/P* M/P W/P Y

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