Please enable JavaScript.
Coggle requires JavaScript to display documents.
Unit 5: The Aggregate Expenditure Model - Coggle Diagram
Unit 5: The Aggregate Expenditure Model
Assumptions & Simplifications
Unplanned Inventory Adjustments
Inventories unexpectedly rising = Cut back on production
Inventories unexpectedly fall = increase production
Current Relevance (Provides insight)
Stuck Price - Model (Prices are fixed)
Use Keynesian Aggregate Expenditure Model
Private Closed Economy
Consumption & Investment Schedules
Investment is constant value - derived from Investment Demand Curve
Equilibrium GDP: C +Ig=GDP
Aggregate Expenditures (Consumption + Investment) (C=Ig)
Equilibrium GDP (aggregate demand curve intersect aggregate supply curve
Real Domestic Output (Firms will produce if revenue equals or exceeds cots of producing)
Disequilibrium (Levels of GDP other than equilibrium level)
Other Features of Equilibrium GDP
No unplanned changes in inventories
Firms do not change production
Saving = Planned Investment
Saving -Leakage of spending
Investment - Injection of spending