2. THE AGGREGATE EXPENDITURES Pertemuan 7 Matakuliah: J0594-Teori Ekonomi Tahun: 2009

3. Bina Nusantara University 3 Consumption and Investment Simplifications Private Closed Economy Planned Investment Investment Schedule r and i (percent) Investment (billions of dollars) 20 8 Real GDP (billions of dollars) 20 Investment (billions of dollars) IgIg Investment Demand CurveInvestment Schedule Investment Schedule ID 20 Investment Demand Curve

4. Bina Nusantara University 4 Consumption and Investment Real Domestic Output Aggregate Expenditures –Aggregate Expenditures Schedule Equilibrium GDP Disequilibrium Equilibrium GDP: C + I g = GDP

5. Bina Nusantara University 5 Consumption and Investment (1)40 (2)45 (3)50 (4)55 (5)60 (6)65 (7)70 (8)75 (9)80 (10)85 $375 390 405 420 435 450 465 480 495 510 $-5 0 5 10 15 20 25 30 35 40 20 $395 410 425 440 455 470 485 500 515 530 $-25 -20 -15 -10 -5 0 +5 +10 +15 +20 Increase Equilibrium Decrease $370 390 410 430 450 470 490 510 530 550 Graphically… …in Billions of Dollars (2) Real Domestic Output (and Income) (GDP=DI) (3) Con- sump- tion (C) (4) Saving (S) (1-2) (5) Investment (I g ) (6) Aggregate Expenditures (C+I g ) (7) Unplanned Changes in Inventories (+ or -) (8) Tendency of Employment Output and Income (1) Employ- ment

6. Bina Nusantara University 6 Consumption and Investment 530 510 490 470 450 430 410 390 370 45° 370 390 410 430 450 470 490 510 530 550 Disposable Income (billions of dollars) Consumption (billions of dollars) C I g = $20 Billion Aggregate Expenditures C = $450 Billion C + I g (C + I g = GDP) Equilibrium Point

7. Bina Nusantara University 7 Other Features of Equilibrium GDP –Saving Equals Planned Investment Leakage Injection –No Unplanned Changes in Inventories

8. Bina Nusantara University 8 Changes in Equilibrium GDP and the multiplier 510 490 470 450 430 45° 430 450 470 490 510 Real GDP (billions of dollars) Aggregate Expenditures (billions of dollars) Increase in Investment (C + I g ) 0 Decrease in Investment (C + I g ) 2 (C + I g ) 1

9. Bina Nusantara University 9 Adding International Trade Net Exports and Aggregate Expenditures Net Exports Schedule Net Exports and Equilibrium GDP –Positive Net Exports –Negative Net Exports International Economic Linkages –Prosperity Abroad –Tariffs –Exchange Rates

10. Bina Nusantara University 10 Real GDP +5 0 -5 Net Exports X n (billions of Dollars) Real GDP (billions of dollars) Aggregate Expenditures (billions of dollars ) 510 490 470 450 430 45° 430 450 470 490 510 Aggregate Expenditures with Positive Net Exports C + I g Aggregate Expenditures with Negative Net Exports C + I g +X n2 C + I g +X n1 X n1 X n2 Positive Net Exports Negative Net Exports 450470490 International Trade Net Exports and Equilibrium GDP

11. Bina Nusantara University 11 Adding The Public Sector (1) Level of Output and Income (GDP=DI) (2) Consu mp- tion (C) (3) Saving (S) (4) Investment (I g ) (5) Net Exports (X n ) (6) Government (G) (7) Aggregate Expenditures (C+I g +X n +G) (2)+(4)+(5)+(6) Exports (X) Imports (M) (1)$370 (2) 390 (3) 410 (4) 430 (5) 450 (6) 470 (7) 490 (8) 510 (9) 530 (10) 550 $375 390 405 420 435 450 465 480 495 510 $-5 0 5 10 15 20 25 30 35 40 $20 20 10 20 $415 430 445 460 475 490 505 520 535 550 10 …in Billions of Dollars Government Purchases and GDP

12. Bina Nusantara University 12 Adding The Public Sector 45° 470 550 Real GDP (billions of dollars ) Aggregate Expenditures (billions of dollars) C Government Spending of $20 Billion C + I g + X n C + I g + X n + G $20 Billion Increase in Government Spending Yields an $80 Billion Increase In GDP Government Spending and GDP