Economics 1022A/B Chapter Notes - Chapter 27: Real Interest Rate, Aggregate Supply, Disposable And Discretionary Income
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ECON 1022A/B Full Course Notes
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Chapter 27: because each firms prices are fixed economy as a whole, the price level is fixed, aggregate demand determines real gdp, expenditure plans, four components of aggregate expenditure (sum= real gdp) Gdp: an increase in real gdp increases aggregate expenditure, an increase in aggregate expenditure increases real gdp, consumption and saving plans. Induced expenditure= c+i+g+x: varies with real gdp, autonomous expenditure= i+g+x, does not vary with real gdp. Insert figure 27. 3: actual expenditure, planned expenditure and real gdp. If aggregate planned expenditure is less than real gdp, firms sell less than they planned to sell and end up with unplanned inventories. Insert figure 27. 5: the multiplier effect, equilibrium expenditure increases by more than the increase in autonomous expenditure (the multiplier is greater than 1) Increase in equilibrium expenditure= increase in autonomous expenditure+ increase in induced expenditure. Influence size of multiplier- make it smaller than it would be otherwise.