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Unit 5: Chapter 31 The Aggregate Expenditures Model(Closed Economy) -…
Unit 5:
Chapter 31
The Aggregate Expenditures Model(Closed Economy)
Assumptions and simplifications
Prices are Fixed
GDP = DI
Begin with Private, closed economy
Use the keynesian aggregate expenditure model
Consumption and Investment schedule
Investment Demand Curve
The level of investment spending determined by real interest rate
Investment Schedule
Amount of investment determined in various levels of GDP
Equilibrium GDP: C+ lg = GDP
Graphical Analysis
The aggregate expenditure schedule C+ lg is determened by adding lg to the upsloping consumption schedule C
Equilibrium GDP is determened where the aggregate expenditure schedule intersetcs the 45 degree line
Tabular Analysis
Aggregate Expenditures
Equilibrium GDP
Real Domestic Output
Disequilibrium
Other Features of Equilibrium GDP
Savings equals planned investment
Savings is a Leakage of spending
Investment is an Injection of spending
No unplanned changes in inventories
Firms do not chnage production