ECN 204 Chapter Notes - Chapter 11: Canadian Dollar, Glossary Of Partner Dance Terms, Autarky
1 Mar 2017
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Most fundamental assumption behind the aggregate expenditures model is that prices in economy are fixed. Keynes made simplifying assumption as he observed prices had not declined sufficiently during the great depression to boost spending and maintain output and employment at their pre-depression levels. A(cid:272)tual pri(cid:272)es did(cid:374)(cid:859)t fall duri(cid:374)g depressio(cid:374) a(cid:374)d e(cid:272)o(cid:374)o(cid:373)(cid:455) sa(cid:374)k far (cid:271)elo(cid:449) pote(cid:374)tial output. Households and business greatly reduced spending, inventories and unsold goods as there was massive unemployment. This meant discharging workers, idling production lines, and closing entire factories. Keynes thought new economic model was needed to show how all this could have happened and how it might be reversed. Aggregate expenditures model: help us understand how modern economy is likely to adjust initially to various economic shocks over shorter periods of time. Aggregate expenditures and equilibrium gdp in private closed economy- one without international trade or government table 11-1. Investment schedule shows of amount of investment forthcoming at each level of gdp.
