ECON 2000 Chapter : Aggregate Demand I.docx
27 Dec 2014
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Document Summary
Is lm model: shows what determines national income for given price level; shows what causes income to change in short run when price is fixed; or what causes ad to shift; both interpretations are the same: is: investment an saving; represents what is going on in market for goods and services, lm: liquidity and money; represents what is happening to supply and demand for money, interest rate influences investment and money demand; it links the is lm model, model shows interaction between goods and money market to determine level of national income in short run. Actual and planned expenditure might differ: firms may engage in unplanned inventory investment, pe = c + i + g, consumption depends on disposable income; investment is exogenously fixed and levels of government purchases and taxes are also fixed, pe as function of income slopes upward; higher income = higher consumption; slope is mpc.
