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The Aggregate Expenditure Model - Coggle Diagram
The Aggregate Expenditure Model
Sticky price model
Price level cannot change at all.
This model can help us understand how modern economy will adjust to economic shocks over shorter period of time.
Private closed economy
No international trade.
No government trade.
Consumption and Investment Schedule
Planned investment: the amount firms plan or intend to invest.
Investment schedule: shows the amount of investment forthcoming at each level of the GDP.
GDP is made up of investment and consumption.
Equilibrium GDP: C+Ig
Real Domestic Output, firms will continue to produce as long as revenue equals and exceeds the costs incur to produce.
Aggregate Expenditure schedule, shows the amount of consumption and investment that will be spent at each possible output or income level.
Equilibrium GDP, is that output whose production creates total spending just sufficient to purchase that output.
Disequilibrium
Aggregate Expenditure, schedule shows the amount ( C + Ig ) that will be spent at each possible output or income level.
Savings Equals Planned Investment
Savings is a leakage, or withdrawal of spending from the economy's circular flow of expenditure and income.
Investment is an injection of spending into the income-expenditure stream.
Unplanned changes in inventory, due to unexpected increase and decreases of aggregate spending.