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Unit 5: The Aggregate Expenditures Model - Closed Economy - Coggle Diagram
Unit 5: The Aggregate Expenditures Model - Closed Economy
Keynes model
Great Depression
Closed economy
Households
Businesses
Private sector
Personal saving
No government or Foreign Trade all equal
National income
Personal income
GDP
Disposable income
Investment demand curve - negative relationship
Investment schedule
Investment at any level of GDP
Real GDP
Planned Investment
Investment decisions
Investment
Interest rate
Components
Consumption
Gross Investment, Ig
Stuck prices
Fixed prices in the economy
Equilibrium GDP
Aggregate expenditures schedule
Consumption, C
Investment, Ig
Disequilibrium
GDP less than Equilibrium
High demand for the goods due
Stepping up production
Spending exceeds GDP
More people employed and increase in income
Negative unplanned changes in inventory
Unplanned decline in business inventories
GDP greater than Equilibrium
Unable to recover costs
Surplus business inventories
Cutting back on production
Fewer jobs and decline in income
Equilibrium GDP = C+Ig
In a private closed economy
Production and aggregate expenditure both equal
No unplanned inventories
Savings and planned investment equal
Savings equals planned investment
savings
Leakage
Causes consumption to be less
Planned investment
Injection
Capital expenditure
Consumption
Real Domestic Product (GDP)