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III. UNIT III

III. UNIT III. B. The Consumption Function. 1. Autonomous consumption. identification and determining. factors. 2. Induced consumption. identification and determining. factors. 3. Calculation of MPC and MPS. C. Determinants of Planned Investment. D. Composition of Aggregate Demand.

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III. UNIT III

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  1. III. UNIT III B. The Consumption Function 1. Autonomous consumption... identification and determining factors 2. Induced consumption... identification and determining factors 3. Calculation of MPC and MPS C. Determinants of Planned Investment D. Composition of Aggregate Demand E. Identification of recessionary and Inflationary Gaps

  2. DETERMINANTS OF PLANNED INVESTMENT Planned!!

  3. DETERMINANTS OF PLANNED INVESTMENT 1. EXPECTATIONS (ABOUT EARNINGS/ PROFITS) 2. REAL INTEREST RATE

  4. 8% ANNUAL INTEREST ON CAR LOAN

  5. 8% ANNUAL INTEREST ON CAR LOAN LENDER EXPECTS 5% INFLATION PER YEAR

  6. 8% ANNUAL INTEREST ON CAR LOAN LENDER EXPECTS 5% INFLATION PER YEAR INFLATION PREMIUM

  7. 8% ANNUAL INTEREST ON CAR LOAN LENDER EXPECTS 5% INFLATION PER YEAR INFLATION PREMIUM REAL INTEREST RATE - - 3%

  8. PRICE OF NEW FACTORY IS 1,000,000. ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI.

  9. PRICE OF NEW FACTORY is 1,000,000 ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI. SUPPOSE HE BELIEVES FACTORY WILL CAUSE EXTRA $100,000 IN REVENUE PER YEAR (OR A ________% RATE OF RETURN)

  10. PRICE OF NEW FACTORY is 1,000,000 ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI. SUPPOSE HE BELIEVES FACTORY WILL CAUSE EXTRA $100,000 IN 10 REVENUE PER YEAR (OR A ________% RATE OF RETURN)

  11. INTEREST RATE = 15% BUILD OR NOT? PRICE OF NEW FACTORY IS 1,000,000. ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI. SUPPOSE HE BELIEVES FACTORY WILL CAUSE EXTRA $100,000 IN 10 REVENUE PER YEAR (OR A ________% RATE OF RETURN)

  12. INTEREST RATE = 15% BUILD OR NOT? PRICE OF NEW FACTORY IS 1,000,000. ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI. SUPPOSE HE BELIEVES FACTORY WILL CAUSE EXTRA $100,000 IN 10 REVENUE PER YEAR (OR A ________% RATE OF RETURN)

  13. INTEREST RATE = 5% BUILD OR NOT? PRICE OF NEW FACTORY IS 1,000,000. ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI. SUPPOSE HE BELIEVES FACTORY WILL CAUSE EXTRA $100,000 IN 10 REVENUE PER YEAR (OR A ________% RATE OF RETURN)

  14. INTEREST RATE = 5% BUILD OR NOT? PRICE OF NEW FACTORY IS 1,000,000. ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI. SUPPOSE HE BELIEVES FACTORY WILL CAUSE EXTRA $100,000 IN 10 REVENUE PER YEAR (OR A ________% RATE OF RETURN)

  15. GENERALIZATION GIVEN EXPECTATIONS: INTEREST RATE UP PLANNED I DOWN INTEREST RATE DOWN PLANNED I UP

  16. GENERALIZATION GIVEN EXPECTATIONS: INTEREST RATE INTEREST RATE UP PLANNED I DOWN INTEREST RATE DOWN PLANNED I UP PLANNED I

  17. GENERALIZATION GIVEN EXPECTATIONS: INTEREST RATE INTEREST RATE UP PLANNED I DOWN 5% INTEREST RATE DOWN PLANNED I UP PLANNED I PI FOR YEAR

  18. INTEREST RATE = 5% BUILD OR NOT? PRICE OF NEW FACTORY IS 1,000,000. ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI. SUPPOSE HE BELIEVES FACTORY WILL CAUSE EXTRA $100,000 IN 10 REVENUE PER YEAR (OR A ________% RATE OF RETURN)

  19. INTEREST RATE = 5% BUILD OR NOT? PRICE OF NEW FACTORY IS 1,000,000. ANNUAL DEPRECIATION WILL BE $0 EACH YEAR. SHOULD HE BUILD----IF HE DOES THE $1,000,000 WILL BE PART OF PI. SUPPOSE HE BELIEVES FACTORY WILL CAUSE EXTRA $10,000 IN 1% REVENUE PER YEAR (OR A ________% RATE OF RETURN)

  20. GENERALIZATION: GIVEN INTEREST RATE: WHEN EXPECTATIONS FALL PLANNED I FALLS WHEN EXPECTATIONS RISE PLANNED I RISES

  21. GENERALIZATION GIVEN EXPECTATIONS: INTEREST RATE INTEREST RATE UP PLANNED I DOWN 5% INTEREST RATE DOWN PLANNED I UP PLANNED I PI FOR YEAR

  22. GENERALIZATION GIVEN EXPECTATIONS: INTEREST RATE INTEREST RATE UP PLANNED I DOWN 5% INTEREST RATE DOWN PLANNED I UP PLANNED I PI FOR YEAR

  23. AUTONOMOUS I VERSUS INDUCED I

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