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The Aggregate Expenditures Model - Coggle Diagram
The Aggregate Expenditures Model
Assumptions
Prices are fixed
GDP equals Disposable Income
Begin with Private closed Economy
Consumption and Investment Schedule
Investment Schedule
- shows the amount of investment forthcoming at each level of GDP
Planned Investment-
amount that business firms collectively intend to invest at each possible level of GDP
Investment Schedule and Investment Demand Curve
Equilibrium GDP
C + Ig = GDP
Real Domestic Output
Aggregate Expenditures
Aggregate Expenditures: Consumption plus Investment
Equilibrium GDP
Disequilibrium
Other Features of Equilibrium GDP
Savings Equals Planned Investment
Saving
is a leakage or withdrawal, of spending from the economy's circular flow of income and expenditures.
Investment-
is a purchase of capital goods- is an injection of spending into the income-expenditures stream.
No unplanned Changes in Inventories
Actual Investment
- consists of planned and unplanned investment
Changes in Equilibrium GDP and the Multiplier
Multiplier
- is the change in Real GDP in relation to the initial change in spending
Multiplier is 1/MPS
Changes in Aggregate Expenditures Schedule and Multiplier Effect
International Trade and the Public Sector
International Trade
Net Exports and Aggregate Expenditures
The Net Export Schedule
Net Exports and Equilibrium GDP
Positive Net Exports
Negative Net Exports
International Economic Linkages
Prosperity Abroad
Exchange Rates
A caution on Tariffs and Devaluations
Public Sector
Government Purchases and Equilibrium GDP
Taxation and Equilibrium GDP
Lump-Sum tax- a tax yielding the same amount of tax revenue at each level of GDP
Equilibrium versus Full-Employment GDP
Recessionary Expenditure Gap
Inflationary Expenditure Gap
- The amount by which an economy's aggregate expenditures at the full-employment level of GDP exceeds those just necessary to achieve full employment.
Application: COVID Recession of 2022