ECN 204 Lecture Notes - Lecture 11: Autarky, Main Source, The Recession
13 Jun 2017
School
Department
Course
Professor
Document Summary
Use the keynesian aggregate expenditure model: created it to understand why the great depression happened and how it might be ended. This meant discharging worker, idling production line, and even closing entire factories: keynes thought that a new economic model was needed to show how all this could have happened and how it might be reversed. Assumption: economy has excess production capacity and unemployed labour, so an increase in aggregate expenditure will increase excess production and employment without raising price level. Begin with private, closed economy: consumption spending (c) (consumption schedule, investment spending (ig) In a private closed economy, two components of aggregate expenditures are: consumption (c, gross investment (ig) We examined the consumption schedule in chapter 10. To add the investment decisions of business to the consumption plans of households, we need to construct an investment schedule: show the firm"s planned investment at each level of gdp.
