Outstanding video. I am a fan of ACDC and You Will Love economics and only discovered your channel now. You knocked this topic out of the park. Thank you for the good work
Great introduction video👍. Just to mention, I think there is a little error arround min 0:20 where you say the production is faster than the selling. I think must be the other way around.👍
I appreciate your video, thank you sir. On another note, I think universities should structure their online classes towards video-based content for those of us who are visual learners and full-time workers. Thanks again.
Shubham Poddar Sorry for the confusion. There are two different ways to illustrate the Keynesian model. The traditional way is with the function C+I+G+Xn. This is what I have done. The C+I+G+Xn curve is called aggregate demand. The second way is with a function between the general price level and aggregate demand. That is also called aggregate demand. They are obviously different, but they have the same name. It's confusing. I always use the C+I+G+Xn version because, once you accept the notion of aggregating individual demands, the C+I+G+Xn function is logically consistent. The other method, with Price on the vertical axis is logically inconsistent. In that method the general price level does not include the price of labor. If it did, as prices went up so would income. There would be no downward sloping aggregate demand curve. If your professor uses the second model, my video will not help you much. Sorry.
Am finding this very helpful but am getting stuck on how we get to multiplier being 2,5 am getting 0.4 when I calculate like this 1/(1-0.6) gives me 0.4 what else am I missing ? please assist.. thank you
Swayamshree Barik The multiplier is the name we give to a process. In the Keynesian model many resources are idle. Some workers cannot find work. So, Keynes calls for extra spending by the government. This extra spending causes some workers to be employed and some resources to be used. This causes extra income for those new workers and the owners of the resources. A fraction of this extra income gets spent according to the mpc. The fraction of extra income that is spent then causes more jobs and more income. Then the process continues as this extra income is spent. The process continues on and on. Of course each time the extra income is a little less, according to the mpc. I should create a short video of this using a graph and a numerical example in Excel. If you need more help contact me through my university. Charleston Southern University. You can find my email address there.
arnoldhite, you're teaching deceptive and illegal math. At 4:00 you start talking about the Consumption Function, without showing the equation: C = cY + Co C = cY + AS Co is autonomous consumption, which you call autonomous spending: AS c is what you incorrectly call the marginal propensity to consume. The marginal propensity to consume applies to ΔY, with the result being ΔC: ΔC/ΔY = mpc ΔC = mpc ΔY It's the average propensity to consume that applies to baseline Y, with the result being baseline C: C/Y = apc C = apc Y As shown at 11:08, you're using baseline variables: AS, I, Yf so "c" has to be the average propensity to consume, and autonomous spending therefore must = 0: C = c Y + AS C = (C/Y)Y + AS C = C + AS 0 = AS The consumption function is actually just: C = C. Forgetting that AS must = 0, and C just equals C, and what you say is mpc is actually apc, your multiplier equation is: Y = (1/(1-c)) (AS + I) At 12:19 you have: Y = (1/(1-mpc))(AS + I ) Y = (1/(1-0.6)) (150 + 250) Y = 2.5 * 400 = 1000 [By saying that AS = 150, you've said that 0 = 150] At 13:25, you say there is $200 of extra investment: Y = (1/(1-mpc))(AS + I ) Y = (1/(1-0.6)) (150 + 450) Y = 2.5 * 600 = 1500 That's illegal addition to I before parentheses and multiplication. At 13:42 you ask: "How did it happen that a $200 change initial investment change, caused a $500 change in income?" The answer is: illegal addition before parentheses and multiplication. At about 10:13 you have the equation: ΔY = k * ΔI That's illegal addition: ΔI and ΔY before multiplication. These are Keynes' original two investment multiplier equations, with $1 ΔI: 1) ΔY = ΔC + ΔI 1 = 0 + 1 mpc = ΔC/ΔY = 0 2) ΔY = (1/(1-mpc)) ΔI 0 = (1/(1-mpc)) 0 [Start at delta zero, so you can multiply before adding] 0 = 0 [Multiply] 1 = 1 [Add $1 ΔI] ΔY = ΔI 1/(1-mpc) = ΔY/ΔI = 1/1 = 1 mpc = 0 With legal math: P-E-MD-AS both equations give the same result. ΔI has zero marginal propensity to consume.
Mr. Tugwit, I am sorry my short video on the simple Keynesian model upset you. You are correct that at about the 4 minute mark I speak about the personal consumption function without specifying its basic linear shape. I do discuss is basic shape immediately afterwards. I am not sure about what is bothering you. Are you objecting to my explanation of the Keynesian approach and its assumptions? Or perhaps you are objecting to the Keynesian model in general. Either way I am happy to respond. I know who John Gault is.
As I said in my comment, I object to the deceptive and illegal math, which I already explained. First, in the consumption function: C = cY + Co [Co is what you call AS] c cannot be the marginal propensity to consume: ΔC/ΔY because ΔC/ΔY applies to ΔY, not to baseline Y, and returns ΔC, not C: ΔC/ΔY = mpc ΔC = mpc ΔY It's the average propensity to consume: C/Y which applies to baseline Y, and returns baseline C: C/Y = apc C = apc Y So c must be C/Y, Co must equal zero, and the consumption function is actually: C = C C = c Y + Co C = (C/Y)Y + Co C = C + Co 0 = Co C = C
Mr. Tugwit, Thank you for your detailed explanation. I now understand your objection. However, I think you are incorrect. Based on your detailed notation I assume you are well versed in algebra. Surely you must recognize your symbol "little c" is the slope of a linear function with "Capital C" on the vertical axis and "Y" on the horizontal axis. Using your notation: C = cY + C0 is just a Keynesian version of the equation of a line we all learned in our first algebra course. Back in those days the equation of a line was written as: Y = mX + b. Using that form "m" is the slope of the line. It can be written as ΔY/ΔX. Now using the Keynesian symbols we have your equation C = cY + Co or my equation C = AS + mpc(Y). Either way little c (or mpc) is the rate of change in C relative to Y. Why not try an actual equation like C = 50 + 0.8*(Y). Now pick any 2 values for Y. You will see the rate of change in C is equal to 0.8 no matter which values of Y you select. The average propensity to consume (C/Y) will be different for each value of Y. Sorry, I do not see my error. Perhaps I misunderstand your objection.
arnoldhite, in the marginal propensity to consume: mpc = ΔC/ΔY ΔC and ΔY are ... increments ... which change the values of C and Y. Are you really saying that the marginal propensity to consume: ΔC/ΔY which applies to an increment of Y: ΔY and returns the increment of C: ΔC ΔC/ΔY = mpc ΔC = mpc ΔY applies to baseline Y and returns baseline C? C = c Y + Co C = (ΔC/ΔY) Y + Co
I am not sure what you mean by baseline Y and baseline C. I assume by baseline C, you mean the value of C given a specific value of Y. If my understanding of your meaning is correct then the mpc does not return the value of baseline C. MPC is only the slope of the consumption function. I have reviewed my old video a couple of times. I do not understand why you feel I am claiming that the mpc is anything other than the slope of the consumption function. I agree with you that average propensity to consume C/Y is not the same as mpc(Y). Here I will answer your direct question. You ask: "Are you really saying that the marginal propensity to consume: ΔC/ΔY which applies to an increment of Y: ΔY and returns the increment of C: ΔC ΔC/ΔY = mpc ΔC = mpc ΔY " Yes. I agree with all of that. But then you add: applies to baseline Y and returns baseline C? No. It does not apply to baseline C. To calculate baseline C one must apply the linear form C = AS + mpc(Y). I hope this clears up the matter. If my video is misleading or misrepresents the Keynesian position somewhere, please let me know. I will correct it.
Outstanding video. I am a fan of ACDC and You Will Love economics and only discovered your channel now. You knocked this topic out of the park. Thank you for the good work
Great introduction video👍. Just to mention, I think there is a little error arround min 0:20 where you say the production is faster than the selling. I think must be the other way around.👍
I appreciate your video, thank you sir. On another note, I think universities should structure their online classes towards video-based content for those of us who are visual learners and full-time workers. Thanks again.
wow, what a great time for you to be alive and studying
Thank you Sir,you made me really understand the concept of Key-model
Thanks Arnold, your explaination helped me a lot! Greetings from Egypt.
Really interesting lecture. Thank you!
Thank you, very helpful, very clear.
Thanks for sharing. It is outstanding!
Thank You for this important class sir .
thank you for this. So clear
thank you sir it's very helpfull
Great. Just instead of autonomous spending, it should be named autonomous consumption spending, because investment is also autonomous spending here.
well explained sir
Great class but hard to see the red colour. Thanks
thank u sir..I got it..
thank you so much!
Thank you so much for this
If this is ad curve then what is ae curve
And why ad curve is also downward sloping in higher studies
Shubham Poddar
Sorry for the confusion. There are two different ways to illustrate the Keynesian model. The traditional way is with the function C+I+G+Xn. This is what I have done. The C+I+G+Xn curve is called aggregate demand. The second way is with a function between the general price level and aggregate demand. That is also called aggregate demand. They are obviously different, but they have the same name. It's confusing.
I always use the C+I+G+Xn version because, once you accept the notion of aggregating individual demands, the C+I+G+Xn function is logically consistent.
The other method, with Price on the vertical axis is logically inconsistent. In that method the general price level does not include the price of labor. If it did, as prices went up so would income. There would be no downward sloping aggregate demand curve.
If your professor uses the second model, my video will not help you much. Sorry.
Am finding this very helpful but am getting stuck on how we get to multiplier being 2,5 am getting 0.4 when I calculate like this 1/(1-0.6) gives me 0.4 what else am I missing ? please assist.. thank you
Went back and practiced finally got the 2,5 ,I guess it needs more practice
Phumu, I am glad you figured out your problem. My guess is you entered the expression into your calculator without considering the parentheses.
ok,,sir,,thank u...bt please do answer..I am waiting,..
Swayamshree Barik
The multiplier is the name we give to a process. In the Keynesian model many resources are idle. Some workers cannot find work. So, Keynes calls for extra spending by the government. This extra spending causes some workers to be employed and some resources to be used. This causes extra income for those new workers and the owners of the resources. A fraction of this extra income gets spent according to the mpc. The fraction of extra income that is spent then causes more jobs and more income. Then the process continues as this extra income is spent. The process continues on and on. Of course each time the extra income is a little less, according to the mpc. I should create a short video of this using a graph and a numerical example in Excel. If you need more help contact me through my university. Charleston Southern University. You can find my email address there.
sir,,what do we call multiplier in real life... mathematicall I can understand,,bt theoretically I can not..can u explain by citing an example
Thank you for your question. I am off to class at the moment. I will try to respond to your question tomorrow.
3:23 defund the police
arnoldhite, you're teaching deceptive and illegal math.
At 4:00 you start talking about the Consumption Function,
without showing the equation:
C = cY + Co
C = cY + AS
Co is autonomous consumption, which you call autonomous spending: AS
c is what you incorrectly call the marginal propensity to consume.
The marginal propensity to consume applies to ΔY,
with the result being ΔC:
ΔC/ΔY = mpc
ΔC = mpc ΔY
It's the average propensity to consume that applies to baseline Y,
with the result being baseline C:
C/Y = apc
C = apc Y
As shown at 11:08, you're using baseline variables:
AS, I, Yf
so "c" has to be the average propensity to consume,
and autonomous spending therefore must = 0:
C = c Y + AS
C = (C/Y)Y + AS
C = C + AS
0 = AS
The consumption function is actually just: C = C.
Forgetting that AS must = 0,
and C just equals C,
and what you say is mpc is actually apc,
your multiplier equation is:
Y = (1/(1-c)) (AS + I)
At 12:19 you have:
Y = (1/(1-mpc))(AS + I )
Y = (1/(1-0.6)) (150 + 250)
Y = 2.5 * 400 = 1000
[By saying that AS = 150, you've said that 0 = 150]
At 13:25, you say there is $200 of extra investment:
Y = (1/(1-mpc))(AS + I )
Y = (1/(1-0.6)) (150 + 450)
Y = 2.5 * 600 = 1500
That's illegal addition to I
before parentheses and multiplication.
At 13:42 you ask:
"How did it happen that a $200 change initial investment change,
caused a $500 change in income?"
The answer is: illegal addition before parentheses and multiplication.
At about 10:13 you have the equation:
ΔY = k * ΔI
That's illegal addition: ΔI and ΔY
before multiplication.
These are Keynes' original two investment multiplier equations,
with $1 ΔI:
1) ΔY = ΔC + ΔI
1 = 0 + 1
mpc = ΔC/ΔY = 0
2) ΔY = (1/(1-mpc)) ΔI
0 = (1/(1-mpc)) 0 [Start at delta zero, so you can multiply before adding]
0 = 0 [Multiply]
1 = 1 [Add $1 ΔI]
ΔY = ΔI
1/(1-mpc) = ΔY/ΔI = 1/1 = 1
mpc = 0
With legal math: P-E-MD-AS
both equations give the same result.
ΔI has zero marginal propensity to consume.
Mr. Tugwit, I am sorry my short video on the simple Keynesian model upset you. You are correct that at about the 4 minute mark I speak about the personal consumption function without specifying its basic linear shape. I do discuss is basic shape immediately afterwards. I am not sure about what is bothering you. Are you objecting to my explanation of the Keynesian approach and its assumptions? Or perhaps you are objecting to the Keynesian model in general. Either way I am happy to respond. I know who John Gault is.
As I said in my comment,
I object to the deceptive and illegal math,
which I already explained.
First, in the consumption function:
C = cY + Co [Co is what you call AS]
c cannot be the marginal propensity to consume: ΔC/ΔY
because ΔC/ΔY applies to ΔY, not to baseline Y,
and returns ΔC, not C:
ΔC/ΔY = mpc
ΔC = mpc ΔY
It's the average propensity to consume: C/Y
which applies to baseline Y,
and returns baseline C:
C/Y = apc
C = apc Y
So c must be C/Y,
Co must equal zero,
and the consumption function is actually: C = C
C = c Y + Co
C = (C/Y)Y + Co
C = C + Co
0 = Co
C = C
Mr. Tugwit, Thank you for your detailed explanation. I now understand your objection. However, I think you are incorrect. Based on your detailed notation I assume you are well versed in algebra. Surely you must recognize your symbol "little c" is the slope of a linear function with "Capital C" on the vertical axis and "Y" on the horizontal axis.
Using your notation: C = cY + C0 is just a Keynesian version of the equation of a line we all learned in our first algebra course. Back in those days the equation of a line was written as: Y = mX + b. Using that form "m" is the slope of the line. It can be written as ΔY/ΔX. Now using the Keynesian symbols we have your equation C = cY + Co or my equation C = AS + mpc(Y). Either way little c (or mpc) is the rate of change in C relative to Y.
Why not try an actual equation like C = 50 + 0.8*(Y). Now pick any 2 values for Y. You will see the rate of change in C is equal to 0.8 no matter which values of Y you select. The average propensity to consume (C/Y) will be different for each value of Y.
Sorry, I do not see my error. Perhaps I misunderstand your objection.
arnoldhite, in the marginal propensity to consume: mpc = ΔC/ΔY
ΔC and ΔY are ... increments ...
which change the values of C and Y.
Are you really saying
that the marginal propensity to consume: ΔC/ΔY
which applies to an increment of Y: ΔY
and returns the increment of C: ΔC
ΔC/ΔY = mpc
ΔC = mpc ΔY
applies to baseline Y
and returns baseline C?
C = c Y + Co
C = (ΔC/ΔY) Y + Co
I am not sure what you mean by baseline Y and baseline C. I assume by baseline C, you mean the value of C given a specific value of Y. If my understanding of your meaning is correct then the mpc does not return the value of baseline C. MPC is only the slope of the consumption function.
I have reviewed my old video a couple of times. I do not understand why you feel I am claiming that the mpc is anything other than the slope of the consumption function. I agree with you that average propensity to consume C/Y is not the same as mpc(Y).
Here I will answer your direct question. You ask:
"Are you really saying
that the marginal propensity to consume: ΔC/ΔY
which applies to an increment of Y: ΔY
and returns the increment of C: ΔC
ΔC/ΔY = mpc
ΔC = mpc ΔY "
Yes. I agree with all of that.
But then you add:
applies to baseline Y
and returns baseline C?
No. It does not apply to baseline C. To calculate baseline C one must apply the linear form
C = AS + mpc(Y).
I hope this clears up the matter. If my video is misleading or misrepresents the Keynesian position somewhere, please let me know. I will correct it.