1. Eco 200 – Principles of Macroeconomics Chapter 11: Income and Expenditures Equilibrium

2. Keynesian equilibrium Fixed price level Output adjusts to achieve equilibrium AE > Y  output rises AE < Y  output falls AE = Y  equilibrium

3. Equilibrium

4. Macroeconomic equilibrium YCIGXAE  inv 060152520 100140152510 20022015250 300 1525-10 4003801525-20 5004601525-30

5. Macroeconomic equilibrium YCIGXAE  inv 060152520120 100140152510190 20022015250260 300 1525-10330 4003801525-20400 5004601525-30470

6. Macroeconomic equilibrium YCIGXAE  inv 060152520120-120 100140152510190-90 20022015250260-60 300 1525-10330-30 4003801525-204000 5004601525-3047030

7. Leakages and injections Y= C + I + G + Ex-Im Y = C + S + T (T=taxes) equilibrium: C+I+G+Ex-Im = C+S+T I+G+Ex = S+T+IM injections = leakages

8. Leakages and Injections

9. Multiplier

10. Increase in AE results in larger increase in equilibrium output For example, rise in G leads to higher income resulting in higher C resulting in higher income etc.

11. Multiplier Spending multiplier: 1/(MPS + MPI)

12. GDP gap and multiplier GDP gap = potential real GDP – actual real GDP Recessionary gap = GDP gap / multiplier

13. Real-world complications price level effects endogenous taxes foreign trade repercussions

14. AE and AD As price level rises, C, I, and X decline due to: wealth effect interest-rate effect, and international trade effect.

15. AE and AD