MGEA06H3 Lecture Notes - Lecture 3: Real Interest Rate, Exogeny, Aggregate Demand
30 Apr 2011
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MGEA06H3 Full Course Notes
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Why do we want to develop a model that determines national income: question: does demand (planned expenditure) always equal to supply (actual expenditure), answer: not necessary! But why? (aggregate) demand (ad) = desired expenditure (what we intended to spend): Ad = c + i (intended investment) + g + x im. (aggregate) supply = actual expenditure = actual national income: Gde = c + i + g + x im. The key difference is investment (i) in gde includes unintended change in inventories (something happens that takes the firms by surprise [unexpected change in inventories]) while investment (i) in ad includes only intended investment. www. notesolution. com (cid:222) (cid:222) (cid:222) It is certainly true that every act of production generates income for canadians; however, not all of that income gets translated into demand for the output of firms: we want a model that has some positive relationship between. The underlying model: the underlying model is given by:
