no (no exchange)
yes (exchange; consumption)
yes (exchange; consumption or government purchases)
no (no exchange)
yes (exchange; investment)
06 Value added
Value added = 230 - 60 = 170
Pollution is an externality and not added.
07 Investment
I = 65 + 50 - 5 = 110
AMACR1.DOC
08/06/2016
08 Consumption 1
C = 100 + 0.85 Yd
Components of the consumption function:
100
Autonomous consumption which is independent of income
0.85
MPC = Marginal propensity to consume
Yd
Disposable income (income after tax)
C = 100 + 0.85*1400 = 1290
1600 = 100 + 0.85*Yd
0.85Yd = 1500
Yd = 1765
09 Consumption 2
Price level
Aggregate supply
P2
Aggregate
demand 2
P1
Aggregate demand 1
GDP
Full employment
Price level rises, GDP does not change because of full employment.
10 Living standard
No, real GDP is not a good indicator. Arguments:
The health system, the education system, life expectancy, the environment etc.
are not taken into consideration.
AMACR1.DOC
08/06/2016