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Aggregate Expenditure Model
Chapter 31 (Closed Economy…
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Investment is independent of income (planned/intended regardless of current income) Consumption level is directly related to income level (= to output)
Level of output whose productivity will create total spending sufficient enough to purchase specific output level or else there will be disequilibrium situation
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GDP declines no. of jobs, total income etc. decline but eventually GDP and aggregated expenditure will be at equilibrium. No level of GDP besides equilibrium can be sustained.
Business will have unplanned inventories - business expenditure (on top of planned inventories) Total has value belonging to someone (planned/unplanned)
Less inventory investment as businesses sell more than intended. Negative amount -unplanned inventory investment