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4Chp20-Econ3310 - Expenditure Multiplier ISLM Model...

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Unformatted text preview: Expenditure Multiplier ISLM Model Motivation of short-run analysis (“in the long run we are all dead”). 1. An change in demand must lead to corresponding change in supply. 2. Changes in nominal expenditures are changes in real variables. Keynes assumed that price level is fixed: Equilibrium occurs when the total quantity produced Y (aggregate supply) equals the total quantity demanded Y AD (aggregate demand): Y AD = Y Determination of Aggregate Output Aggregate Output ...
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