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Aggregate expenditures model, C:Consumer
Ig:Gross investments, The…
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- C:Consumer
- Ig:Gross investments
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The great depression
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Spending- Businesses, as well as households reduced their spending's unexpectedly which caused the level of unsold goods to surge.
Increase in inventory, firms will reduce production to match demand(consumers)
Decrease in inventory, firms will increase production to match demand(consumers)
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Equilibrium Output is the point at which total quantity of goods produced is equivalent to the total quantity of goods produced.
- GDP< Equilibrium, spending exceeds GDP
- GDP>Equilibrium, Total output will not generate enough spending to recover costs.
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- Leakage>Injection, C+Ig < GDP and that level cannot be sustained
- Leakage<Injection, Overcompensated for the leakage for that level of GDP
- Leakage=Injection, the injection will offset the leakage and equilibrium output will be met.
Reference: Used Textbook Mcconnell,CR.Brue,SL.Flynn,SM.(2024).Economics:Principles Problems and policies.23rd ed.New York:McGraw Hill LLC
