ECON 1100 Lecture 6: ECON 1100 - 6 - Chapter 8 part2.pdf
1 Dec 2014
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Output in the short run part 2. Xnnxttggiimpcytmpcctympcccp )( autonomous expenditure: the portion of planned ae that is independent of income. Induced expenditure: the portion of ae that depends on income (y) For the economy as a whole, macroeconomic equilibrium occurs where total spending, or aggregate expenditure, equals total production, or gdp: Whenever planned aggregate expenditure is less than real gdp, some firms will experience unplanned increases in inventories. When this happens firms will need to cut back their production promptly, otherwise they will accumulate inventories. Whenever planned aggregate expenditure is greater than real gdp, some firms will experience unplanned decreases in inventories. When this happens firms will need to expand their production promptly, otherwise they will not be able to meet demand. There are 3 methods that can be used to solved for the short run equilibrium output level: numerically, algebraically, graphically.
