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Aggregate Expenditure Model (CLOSED ECONOMY) - Coggle Diagram
Aggregate Expenditure Model (CLOSED ECONOMY)
ASSUMPTIONS & SPECIFICATIONS
ASSUME FIXED PRICES
Keynesian aggregate expenditure model is used
GDP = DIRECT INVESTMENTS
Begin with a closed economy
Consumption spending
Investment spending
CONSUMPTION AND INVESTMENT SCHEDULE
2 COMPONENTS: CONSUMPTION (C) AND GROSS INVESTMENTS (Ig)
PLANNED INVESTMENT = GDP
Note the difference between Investment demand curve and Investment Schedule.
Investment Demand curve is determined by interest rate
investment Schedule = the investment at each level of GDP
Equilibrium GDP : C+Ig = GDP
Firms will produce at any level of output as long as Revenue = cost incurred
Aggregate expenditure = Consumption + Investment
In a closed economy Equilibrium is when total output produced = total quantity of goods purchased.
Savings and planned Investments are equal S = Ig
There is no unplanned changes in Invesment
Savings = Leakage
Investment is an Injection
Firms will not change production