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
Equilibrium GDP: C+ lg = GDP
Investment Demand Curve
Investment Schedule
The level of investment spending determined by real interest rate
Amount of investment determined in various levels of GDP
Graphical Analysis
Tabular Analysis
Aggregate Expenditures
Equilibrium GDP
Real Domestic Output
Disequilibrium
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
Other Features of Equilibrium GDP
Savings equals planned investment
No unplanned changes in inventories
Savings is a Leakage of spending
Investment is an Injection of spending
Firms do not chnage production