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INDUCED: The general notion that changes in one variable are related to, or caused by, changes in another variable. Induced relations, especially changes in consumption expenditures are induced by changes in disposable income, are a key aspect of Keynesian economics and the multiplier effect. The alternative to an induced relation between variables is an autonomous relation, in which one variable is not related to another.

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Lesson 14: Aggregate Supply | Unit 2: Two Options Page: 4 of 20

Topic: Time Periods <=PAGE BACK | PAGE NEXT=>

Production of goods and services takes time.Two time periods:
  • Long run A period in which all prices are flexible. Long run price flexibility means that all markets are in equilibrium.
  • Short run A period in which some prices are flexible and some are rigid. Short run price rigidity leads to disequilibrium in resource markets, even though product and financial markets are in equilibrium.
  • In the short run, disequilibrium in resource markets (especially labor) means that jobs remain unfilled or some workers are unemployed, even though we have equilibrium in the product markets, with satisfied buyers and sellers.

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FOUR-SECTOR INJECTIONS-LEAKAGES MODEL

A variation of the Keynesian injections-leakages model that adds the foreign sector to the three domestic sectors--the household sector, the business sector, and the government sector. This variation adds the foreign to the three domestic sectors (household, business, and government) in the three-sector model and provides an alternative to the four-sector aggregate expenditures (Keynesian cross). It provides the complete Keynesian representation of the macroeconomy, including the export-import interaction between the domestic economy and the foreign sector. Equilibrium is identified as the intersection between the S + T + M line and the I + G + X line. Two related variations are the two-sector injections-leakages model and the three-sector injections-leakages model.

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Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors wanting to buy either yellow cotton balls or a set of steel-belted radial snow tires. Be on the lookout for the happiest person in the room.
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John Maynard Keynes was born the same year Karl Marx died.
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

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