1. Congratulations on Successful Completion of 1 st Semester!! Reminder: you are close but not there yet Reminder: you are close but not there yet Reminder: Economics is really fun and interesting Reminder: Economics is really fun and interesting Senior Reminder: Academic expectations Senior Reminder: Academic expectations Senior Reminder: You will likely need this for college and life Senior Reminder: You will likely need this for college and life Juniors Reminder: Juniors Reminder:

2. Natl. Score Distributions Score Percent Score Percent 5 14.9% 5 14.9% 4 22.7% 4 22.7% 3 15.2% 3 15.2% 2 19.8% 2 19.8% 1 27.5% 1 27.5%

3. Aggregate Demand and Aggregate Supply: Fluctuations in Outputs and Prices

4. Keynesian= Simple Model of the Economy Purpose of 3.1 is to develop a simple model of the economy Purpose of 3.1 is to develop a simple model of the economy GDP= C+I+G+NX GDP= C+I+G+NX Variable? Variable? Keynesian Model= Price level held constant Keynesian Model= Price level held constant

5. Simple Keynesian Model Planned aggregate expenditure = C + I + G + NX 45 degree line: all points where production (real GDP) = aggregate expenditure Equilibrium occurs where planned aggregate expenditure equals production

6. Equilibrium and Disequilibrium in the Keynesian Model C(consumption) = a+b(marginal propensity to consume)*Y(income or output) C(consumption) = a+b(marginal propensity to consume)*Y(income or output) MPC= change in consumption/change in income MPC= change in consumption/change in income

7. What can households do with income? MPC (marginal propensity to consume) + MPS (marginal propensity to save) = 1 MPC (marginal propensity to consume) + MPS (marginal propensity to save) = 1 APC (average propensity to consume) APC (average propensity to consume) APS (average propensity to save) APS (average propensity to save)

8. Saving and Dissaving

9. Increase in Investment

10. Investment Demand Interest rate decreases from r to r1. Investment increases from I to I1.

11. Different Elasticities of Investment Demand Decrease of interest rates from r to r1. * With IA, investment increases from I to I2. With IB, investment increases from I to I1. * IA is more elastic than IB.