Chapter 31 The Aggregate Expenditure Model (Equilibrium Point (Less than…
The Aggregate Expenditure Model
John Maynard Keynes, during the great depression.
Investment Demand Curve
depicts the dollar value of investment projects demanded for every given interest rate.
slopes downward as interest rate increases. "borrowed money"
This schedule depicts the relationship between INVESTMENT and the level of NATIONAL INCOME.
Forms of the Model
Excludes the use of:
Is the sum of
consumption and Investment
GDP = C + Ig
Includes the use of
GDP = C + Ig + G + NX
Is the total sum of all GDP
factors i.e. (consumption, investment
government, Net exports)
Less than EP =
Spending is GREATER than Output
Results in Inventories depleting faster then production.
Production will increase as will;
Greater than EP =
Results in Inventories standing still.
Production will decrease as will;
EP in the closed Private model : Saving = investment
GDP less than Equilibrium = Spending
exceeds production (inflation).
GDP greater than Equilibrium = production
exceeds consumption (unemployment)