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Expenditure Multipliers: The Keynesian Model: Lecture: Al Muizzuddin F., Se., Me

The document provides an overview of the Keynesian model and expenditure multipliers. It explains that in the Keynesian model, aggregate demand determines real GDP when prices are fixed. It also outlines that aggregate planned expenditure is determined by consumption, investment, government spending, and exports minus imports. Additionally, it distinguishes between induced expenditure that varies with real GDP and autonomous expenditure that does not vary with real GDP.

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Reza Afrisal
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85 views

Expenditure Multipliers: The Keynesian Model: Lecture: Al Muizzuddin F., Se., Me

The document provides an overview of the Keynesian model and expenditure multipliers. It explains that in the Keynesian model, aggregate demand determines real GDP when prices are fixed. It also outlines that aggregate planned expenditure is determined by consumption, investment, government spending, and exports minus imports. Additionally, it distinguishes between induced expenditure that varies with real GDP and autonomous expenditure that does not vary with real GDP.

Uploaded by

Reza Afrisal
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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LECTURE: AL MUIZZUDDIN F., SE., ME.

EXPENDITURE MULTIPLIERS:
THE KEYNESIAN MODEL
In the Keynesian model that we study in this chapter,
all the firms are like your grocery store.
Because each firms prices are fixed, for the economy
as a whole:
1. The price level is fixed, and
2. Aggregate demand determines real GDP
2
Aggregate planned expenditure is equal to the sum of
the planned levels of consumption expenditure,
investment, government expenditure on goods and
services, and exports minus imports.
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Several factors influence consumption expenditure and
saving plans. The more important ones are:
1. Disposable income
2. Real interest rate
3. Wealth
4. Expected future income
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The relationship between consumption expenditure
and disposable income, other things remaining the
same, is called the consumption function. The
relationship between saving and disposable income,
other things remaining the same, is called the saving
function.
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You are now going to see how, at a given price level,
aggregate expenditure plans determine real GDP. We
start by looking at the relationship between aggregate
planned expenditure and real GDP.
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Consumption expenditure minus imports, which varies
with real GDP, is called induced expenditure. The sum
of investment, government expenditure, and exports,
which does not vary with real GDP, is called
autonomous expenditure.
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Actual aggregate expenditure is always equal to real
GDP. But aggregate planned expenditure is not always
equal to actual aggregate expenditure and therefore is
not always equal to real GDP. How can actual
expenditure and planned expenditure differ?
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