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Recap.
Investment Function
Stock of capital
MEC
MEC3
MEC1
Investment
Investment
I at i =3%
I at i = 5%
Output(Y)
I = c + dY
c
Output(Y)
Diagrammatically,
E=Y
Exp (E)
C+I
C
Y1
Y2
Mutliplier effect
Output(Y)
Diagrammatically,
E=Y
Exp (E)
C+I
C
c
a
Y1
Y2
Mutliplier effect
Output(Y)
Role of Government
Its function is to collect taxes, make transfer
payments and spend on socio-economic
projects.
C+I+G
C+I
Y1
Y*
unemployment
Output(Y)