The Aggregate Expenditures Model

May 20th, 2015
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Aggregate expenditure equals aggregate income and real GDP. But aggregate planned expenditure might not equal real GDP because firms can end up with larger or smaller inventories than they had intended

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11The AggregateExpenditures ModelMcGraw-Hill/IrwinCopyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Assumptions and Simplifications Use the Keynesian aggregateLO1expenditures modelPrices are fixedGDP = DIBegin with private, closed economy Consumption spending Investment spending11-2Consumption and InvestmentInvestmentdemandcurve820ID20Investment(billions of dollars)(a)Investment demand curveLO1Investment ScheduleInvestment (billions of dollars)r and i (percent)Investment Demand CurveInvestmentscheduleIg2020Real domestic product, GDP(billions of dollars)(b)Investment schedule11-3Equilibrium GDPDetermination of the Equilibrium Levels of Employment, Output, and Income: A Private Closed Economy(2)RealDomesticOutput(andIncome)(GDP =DI),*Billions(3)Consumption(C),Billions(4)Saving(S),Billions(5)Investment(Ig),Billions(6)AggregateExpenditure(C+Ig),Billions(7)UnplannedChanges inInventories,(+ or -)(1) 40$370$375$-5$20$395$-25Increase(2) 45390390020410-20Increase(3) 50410405520425-15Increase(4) 554304201020440-10Increase(5) 604504351520455-5Increase(6) 6547045020204700(7) 704904652520485+5Decrease(8) 755104803020500+10Decrease(9) 805304953520515+15Decrease(10) 855505104020530+20Decrea

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