ECN 204 Lecture Notes - Lecture 8: Avoidance Speech, Canadian Dollar, Aggregate Supply

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The equilibrium output is that output the production of which creates total spending just sufficient to purchase that output: no overproduction or underproduction, no draw down or piling up of inventories. No unplanned changes in inventories: changes in inventories are a part of investment, when unplanned changes in inventories are considered, investment & savings are always equal, at any level of gdp. Savings equals planned investment: saving represents a leakage of spending, investment can be thought of as an injection of spending. Changes in national income: movements along the ae curve, movements along the desired saving line. Changes in equilibrium national income: due to shifts in the ae curve, due to shifts in the desired saving and investment. Changes in spending and changes in real gdp. Multiple: the ratio of change in the equilibrium gdp to the change in investment. Multiplier = changes in equilibrium gdp/ initial change in spending. One persons spending is another persons income.

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