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Canada (158,052)
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ECN 204 (281)
Chapter 9

Chapter 9 - The Aggregate Expenditures Model

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Ryerson University
ECN 204
Thomas Barbiero

Chapter 9 The Aggregate Expenditures Model 9.1 Aggregate Expenditures Model: Consumption and Saving Simplification private closed economy No government No taxes No exports or imports Consumption and investment schedule Consumption schedule: higher income = higher consumption Saving schedule: higher income = higher saving Relationship between consumption and GDP: as GDP increases, so does consumption When GDP increases, investment doesnt increase, it stays the same Investment demand curve: downward sloping Investment schedule: straight horizontal line Calculating GDP Table 9.2 Real domestic output determined by aggregate expenditure Aggregate expenditure: in our closed economy AE = C + I Disequilibrium: no level other than the equilibrium level can be sustained Unplanned inventory is the different between production and AE (GDP AE) When inventories run down, production will increase Summary: Equilibrium GDP The equilibrium output is that output which creates total spending just sufficient to produce that output Other features of equilibrium GDP: o Saving equals planned investment Saving represents a leakage of spending Investment can be thought of as an injection of spending o No unplanned changes in inventories 9.2 Changes in Equilibrium GDP and the Multiplier In the private closed economy, the equilibrium GDP will change in response to changes in either the investment schedule or the consumption schedule Investment schedules are the main source of fluctuations www.notesolution.com
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