ECN 204 Chapter Notes - Chapter 11: Fiscal Multiplier, Autarky, Potential Output
Document Summary
Ecn 204 chapter 11 the aggregate expenditures model. The simplifying assumptions underpinning the aggregate expenditures model re ect the economic conditions prevalent during the great depression. The most fundamental assumption behind the aggregate expenditures model is that prices in the economy are xed. The model itself is an extreme version of a stick price model. Help us understand how the modern economy is likely to adjust initially to various economic shocks over shorter periods of time. Build up the aggregate expenditures model in simple stages. (1) look at aggregate expenditures and equilibrium gdp in a private closed economy. (2) open the closed economy to exports/imports and cover private economy to a more realistic mixed economy that includes government purchases. (3) assume that real gdp equals disposable income until we introduce taxes into the model. In the private closed economy, the 2 components of aggregate expenditures are consumption (c) and gross investment (ig)
