The Aggregate Expenditures Model
Assumptions and Simplifications
The prices are fixed.
GDP = DI
Uses the Keynesian aggregate expenditures model.
It begins with private closed economy.
Consumption spending.
Investment spending
Investment demand curve
Investment schedule
Shows the amount of investment forthcoming at each level of GDP.
Shows how much investment firms plan to make at each interest rate.
Equilibrium GDP
The output whose production creates total spending just sufficient to purchase that output.
It occurs where the total quantity of goods produced (GDP) equals the total quantity of goods purchased. (C+Ig)
C + Ig = GDP
Other features of equilibrium GDP
No unplanned changes in inventory levels.
Saving equals planned investment
Investment is an injection of spending.
Saving is a leakage of spending.
Firms do not change production.