ECONOMICS 1B
LEARNING UNIT 6
INCOME DETERMINATION IN A
SIMPLE KEYNESIAN MODEL
COMPREHENSIVE MASTER STUDY GUIDE · BOTH LECTURERS
The two uploaded LU6 sources are combined here. Material unique to each lecturer is
retained, and lecturer diagrams/graphs/examples are integrated throughout.
IMPORTANT: This version deliberately includes the material from the newer 78-slide lecturer deck as well as the
earlier 46-page LU6 source. The newer deck adds material on the three central flows, planned spending, excess
demand/supply, equilibrium below full employment, credit and confidence, expected profits/revenue, model scope,
the multiplier chain, the paradox of thrift and additional practice.
PMAC5112 · Economics 1B · LU6 · Both Lecturer Sources Page 1
, CONTENTS
1 THE THREE CENTRAL MACROECONOMIC FLOWS
2 NATIONAL ACCOUNTS vs MACROECONOMIC THEORY
3 AGGREGATE SPENDING, EQUILIBRIUM & INVENTORIES
4 EQUILIBRIUM DOES NOT MEAN FULL EMPLOYMENT
5 KEYNES, THE GREAT DEPRESSION & SAY'S LAW
6 ACTIVITY: EXCESS SUPPLY
7 CONSUMPTION SPENDING
8 THE THREE CHARACTERISTICS OF THE CONSUMPTION FUNCTION
9 AUTONOMOUS + INDUCED CONSUMPTION
10 MARGINAL PROPENSITY TO CONSUME (MPC)
11 NON-INCOME DETERMINANTS & SHIFTS IN CONSUMPTION
12 CONSUMPTION & SAVING
13 INVESTMENT SPENDING
14 WHAT DETERMINES INVESTMENT?
15 THE SIMPLE KEYNESIAN MODEL: ASSUMPTIONS & SCOPE
16 EQUILIBRIUM INCOME & THE 45° LINE
17 CALCULATING EQUILIBRIUM INCOME
18 THE MULTIPLIER EFFECT
19 THE MPC DETERMINES THE SIZE OF THE MULTIPLIER
20 FROM ONE EQUILIBRIUM TO ANOTHER + REQUIRED INVESTMENT
21 PRACTICE & FORMULA MASTER PAGE
PMAC5112 · Economics 1B · LU6 · Both Lecturer Sources Page 2
, 1 THE THREE CENTRAL MACROECONOMIC FLOWS
The newer lecturer begins with the three central macroeconomic flows: production creates income, and income
makes spending possible. The simple Keynesian model then focuses on the relationship between aggregate
spending, production and income. Macroeconomic theory explains how the economy functions, predicts what might
happen and helps analyse economic policy. Keynes' model places spending at the centre of the adjustment process.
NEWER LECTURER PPTX — slide 3
NEWER LECTURER PPTX — slide 4
PMAC5112 · Economics 1B · LU6 · Both Lecturer Sources Page 3
, NEWER LECTURER PPTX — slide 5
EARLIER LU6 PDF — page 3
PMAC5112 · Economics 1B · LU6 · Both Lecturer Sources Page 4
LEARNING UNIT 6
INCOME DETERMINATION IN A
SIMPLE KEYNESIAN MODEL
COMPREHENSIVE MASTER STUDY GUIDE · BOTH LECTURERS
The two uploaded LU6 sources are combined here. Material unique to each lecturer is
retained, and lecturer diagrams/graphs/examples are integrated throughout.
IMPORTANT: This version deliberately includes the material from the newer 78-slide lecturer deck as well as the
earlier 46-page LU6 source. The newer deck adds material on the three central flows, planned spending, excess
demand/supply, equilibrium below full employment, credit and confidence, expected profits/revenue, model scope,
the multiplier chain, the paradox of thrift and additional practice.
PMAC5112 · Economics 1B · LU6 · Both Lecturer Sources Page 1
, CONTENTS
1 THE THREE CENTRAL MACROECONOMIC FLOWS
2 NATIONAL ACCOUNTS vs MACROECONOMIC THEORY
3 AGGREGATE SPENDING, EQUILIBRIUM & INVENTORIES
4 EQUILIBRIUM DOES NOT MEAN FULL EMPLOYMENT
5 KEYNES, THE GREAT DEPRESSION & SAY'S LAW
6 ACTIVITY: EXCESS SUPPLY
7 CONSUMPTION SPENDING
8 THE THREE CHARACTERISTICS OF THE CONSUMPTION FUNCTION
9 AUTONOMOUS + INDUCED CONSUMPTION
10 MARGINAL PROPENSITY TO CONSUME (MPC)
11 NON-INCOME DETERMINANTS & SHIFTS IN CONSUMPTION
12 CONSUMPTION & SAVING
13 INVESTMENT SPENDING
14 WHAT DETERMINES INVESTMENT?
15 THE SIMPLE KEYNESIAN MODEL: ASSUMPTIONS & SCOPE
16 EQUILIBRIUM INCOME & THE 45° LINE
17 CALCULATING EQUILIBRIUM INCOME
18 THE MULTIPLIER EFFECT
19 THE MPC DETERMINES THE SIZE OF THE MULTIPLIER
20 FROM ONE EQUILIBRIUM TO ANOTHER + REQUIRED INVESTMENT
21 PRACTICE & FORMULA MASTER PAGE
PMAC5112 · Economics 1B · LU6 · Both Lecturer Sources Page 2
, 1 THE THREE CENTRAL MACROECONOMIC FLOWS
The newer lecturer begins with the three central macroeconomic flows: production creates income, and income
makes spending possible. The simple Keynesian model then focuses on the relationship between aggregate
spending, production and income. Macroeconomic theory explains how the economy functions, predicts what might
happen and helps analyse economic policy. Keynes' model places spending at the centre of the adjustment process.
NEWER LECTURER PPTX — slide 3
NEWER LECTURER PPTX — slide 4
PMAC5112 · Economics 1B · LU6 · Both Lecturer Sources Page 3
, NEWER LECTURER PPTX — slide 5
EARLIER LU6 PDF — page 3
PMAC5112 · Economics 1B · LU6 · Both Lecturer Sources Page 4
