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ECN 211 L13 Equilibrium in the Keynesian Model_BB

# ECN 211 L13 Equilibrium in the Keynesian Model_BB - ECN 211...

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05/06/09 1 ECN 211 Macroeconomic Principles L13:Equilibrium in the Keynesian Model.

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05/06/09 2 Aggregate Expenditures Remember AE = C + I + G + NX Remember AE  _______  as income  ___________ Note: AE are  __________________ – I.e. what we plan to spend at different levels of income.
05/06/09 3 Aggregating expenditures. 30 Y Aggregate expenditures C C+I 80 150 C+I+G C+I+G+NX=AE 200

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05/06/09 4 Equilibrium Equilibrium occurs in the fixed price Keynesian model  when  ____________________ equal the level of  ______________
05/06/09 5 Real GDP (Y) Aggregate expenditures 45 o Line (Y=AE) \$100 \$100 \$200 \$200 \$300 \$300 Therefore have to be on the 45 degree line in equilibrium

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05/06/09 6 Aggregate Expenditures Example C = 30 + 0.7Y I = 50 G = 70 X = 100 M = 50 + 0.1Y
05/06/09 7 Equilibrium AE = 30 + 0.7Y + 50 + 70 + 100 - 50 - 0.1Y AE = Equilibrium occurs when  Thus Y =  Y = Y =

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05/06/09 8 Real GDP (Y) 45 o Line (Y=AE) \$200 \$200 \$500 \$500 \$400 \$440 \$400 AE Aggregate expenditures
Getting to Equilibrium Found that equilibrium occurs (Y=AE) when income (real GDP)  equals ___________ – But how do we get there? Suppose income was ________ _________  aggregate expenditure at an income level of ______is  \$______ – We are planning on purchasing  __________ than what has been  __________ this year. • Remember GDP (Y) is what is  _________  in a given year. – So how can we consume more than what is produced?? 05/06/09 9

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GDP (Y) and ______________. Remember when units are
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ECN 211 L13 Equilibrium in the Keynesian Model_BB - ECN 211...

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