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The Aggregate Expenditures Model - Coggle Diagram
The Aggregate Expenditures Model
Also known as the Keynesian cross
The amount of goods and services produced and the level of employment depend entirely on the total spending
Assumptions and Simplifications
A stuck price model
Prices are fixed
Production decisions are made in response to unexpected changes in inventory levels
Planned investment
The amount that firms plan or intend to invest.
A private closed economy
2 Components of aggregate expenditures is: Consumption and gross investment
Investment schedule
A curve or schedule that shows the amounts that firms plan to invest at various possible values of real gross domestic product (real GDP).
Equilibrium GDP: C + Ig = GDP
Firms are willing to produce any level of output as long as the revenue exceeds the cost of production
Aggregate expenditures schedule
A table of numbers showing the total amount spent on final goods and final services at different levels of real gross domestic product (real GDP).
The gross domestic product at which the total quantity of final goods and final services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (the real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve. Also known asequilibrium real output.
Disequilibrium
No level of GDP other than equilibrium GDP can be sustained
Leakage
(1) A withdrawal of potential spending from the income-expenditures stream via saving, tax payments, or imports; (2) a withdrawal that reduces the lending potential of the banking system.
Injection
An addition of spending into the income-expenditure stream: any increment to consumption, investment, government purchases, or net exports.
Unplanned changes in inventories
Changes in inventories that firms did not anticipate; changes in inventories that occur because of unexpected increases or decreases of aggregate spending (or of aggregate expenditures).