Short-Run Equilibrium
Lecture 11
2/18/2016
Figure 5
Deriving the Aggregate Expenditure Line
Real Aggregate Expenditure
($ billions)
12,000
C + IP + G + NX
C + IP + G
5. to get the aggregate
expenditure line.
C + IP
C
10,000
8,000
Consumption
Function
4. and net exports (NX) . . .
6,000
4,000
3. government purchases (G) . . .
2,000
2. then add planned investment (Ip) . . .
2,000
1. Start with the
consumption–income line,
4,000
6,000
8,000
10,000
12,000
Real GDP ($ billions)
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2
Figure 6
Using a 45° Line to Translate Distances
A
Dollars
1. Using a 45° line . . .
3. into an equal vertical
distance (BA).
Consumption
Function
45°
0
B
Dollars
2. we can translate any horizontal
distance (such as 0B) . . .
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
3
Figure 12
Consumption and Investment: 2006–2009 (b)
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
4
Figure 12
Consumption and Investment: 2006–2009 (a)
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
5
A Solution to a Recession Part 1?
A Solution to a Recession Part 2?
6