Topic 11 The Aggregate Expenditure Model

Topic 11 The Aggregate Expenditure Model - Topic 11 The...

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Topic 11 The Aggregate Expenditures Model
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Keynes developed this model during the depression of the 1930s and it can help explain how modern economies adjust to economic shocks. This is used today to provide insight regarding current economic conditions. Keynesian Aggregate Expenditure Model
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Consumption and Investment r and i (percent) Investment (billions of dollars) (a) Investment demand curve Shows the inverse relationship between Interest rate and the amount of planned investment ID 20 8 Real domestic product, GDP (billions of dollars) (b) Investment schedule Shows the amount of planned investment at each level of GDP. 20 Investment (billions of dollars) I g Investment Demand Curve Investment Schedule 20 Investment demand curve Investment schedule 20
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The equilibrium output is that output whose production creates total spending just sufficient to purchase that output. So the equilibrium level at which the total quantity of goods produced equals the total quantity of goods purchased. In the private closed economy, the equilibrium is: C + I g = GDP Equilibrium GDP
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