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Adding Investment

Adding Investment - Chapter 9 p 168-175 Adding Investment...

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28 Chapter 9, p. 168-175 Adding Investment to Aggregate Spending Model Since Investment is a component of RGDP, we can add the investment function to the model International Trade and Equilibrium Output Net Exports (exports minus imports) may be either positive or negative. Exports expand aggregate spending; imports contract it. Exports act as an injection like investment. Exports are a part of aggregate expenditures. Imports (goods produced outside the US) act as leakages from the income stream. Imports are subtracted when measuring aggregate expenditures . Positive net exports increase aggregate expenditures on domestic output and increase equilibrium GDP Negative net exports decrease aggregate expenditures on domestic output and reduce equilibrium GDP. E x p e n d i t u r e s A g g r e g a t e Real GDP 45 ˚ C+Ig+X n 1 C+Ig C+Ig+X n 2 AE with positive Net Exports AE with negative Net Exports You can see the effect (both positive and negative) of the multiplier here!
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