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Chapter 31 - The Aggregate Expenditures Model (Equilibrium GDP (Tabular…
Chapter 31 - The Aggregate Expenditures Model
Consumption and Investment Schedule
Private Closed Economy
- is an economy without a government or international trade
Consumption
Consumption Schedule
- graphically illustrates the relationship between consumption and disposable income.
Gross Investment
Investment Schedule
- represents the amounts that firms plan to invest at various possible values of real GDP (gross domestic product). Shows the amount of investment that will be spent at each level of GDP.
Assumptions and Simplifications
Aggregate Expenditures Mode
l - determines the total amount that firms and households plan to spend on goods and services at each level of output.
The economy's prices are fixed.
GDP equals DI (disposable income)
Equilibrium GDP
Tabular analysis
Real Domestic Output
- various levels of real GDP
Equilibrium GDP
- total quantity of goods produced (GDP) equals total quantity of goods purchased (C + Ig).
Aggregate Expenditures
- consumption plus investment
Disequilibrium
- when the GDP levels are more or less than the equilibrium
Graphical Analysis
On the 45 degree line, the vertical values of the x-axis are equal to the horizontal values of the y-axis.
Other Features of Equilibrium GDP
Characteristics of Equilibrium:
Savings and planned investments are equal (S = Ig)
There are no unplanned changes in inventories
Saving equals planned investment
Saving
- is the portion of income not spent on current expenditures.
Injection
- approach to increase finance in economy