CH9-24.04.09 - , this means that the actual production is...

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24.04.2009 CHAPTER 9 BUILDING THE AGREEGATE EXPENDITURES MODEL Equilibrium GDP 1. Expenditures and Output Approach 2. Leakages and Injections Approach According to Keynesian Modal, the economy can come to equilibrium at any level of GDP provided that (DI, GDP) equal to the AE. This level may even be less than full capacity level or potential output level of the economy. 1. Expenditures and Output Approach: a. Equilibrium: The equilibrium point is where DI=GDP=AE This means that; a. All DI is spent. b. All GDP is sold out. c. No saving! GDP=Production and AE=Expenditures. If GDP=AE, Produced Goods and Services sold and equals with expenditures. (Goods + Services=Expenditures) b. Disequilibrium: When AE>DI
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Unformatted text preview: , this means that the actual production is insufficient. Therefore, inventories decrease. When inventories decrease, the producers are induced to produce more in order to make up for inventories liquidating. Is it possible to spend more than the amount produced? Yes, we can spend more the amount produced by borrowing or liquidating our real or financial assets. So, GDP increase. When DI>AE , the goods produced cannot be sold. So, inventories increase. When inventories increase, producers stop producing. GDP goes down. And finally the economy comes to equilibrium point . But, this point may be under the full capacity level and the economy may stay at this point for a long time....
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This note was uploaded on 01/01/2012 for the course MIS 132 taught by Professor Hasandag during the Spring '11 term at Kadir Has Üniversitesi.

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