1.2. In the table below is data for a hypothetical private-closed economy. Table 1 A Private Closed Economy Real domestic output (GDP=DI) (billions) Consumption (billions) Saving (billions) Investment (billions) Aggregate Expenditures (billions) $240 260 280 300 320 340 360 380 400 $244 260 276 292 308 324 340 356 372 $ -4 0 4 8 12 16 20 24 28 $16 16 16 16 16 16 16 16 16 $260 276 292 308 324 340 356 372 388 Recall, private means that there is no government and closed means that there is no foreign trade. Use the information in the Table 1 to analyze aggregate expenditures (AE) model below (Figure 1. Equilibrium in a Private Closed Economy). Figure 1. Equilibrium in a Private Closed Economy See the attached graph. 1.3. Identify the mistake and explain why the graph of the aggregate expenditures line does not correctly illustrate the economy's equilibrium. 1.4. Create a graph for the aggregate expenditures (AE) model in Excel using the data from Table 1: A Private Closed Economy. Watch the tutorial: How to Create a Basic Chart in Excel. Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP. Aggregate expenditure and GDP are both function of consumption, investment, government spending, and net exports. So, the equations for the two are identical: Y = C + I + G + NX, and AE (aggregate expenditure) = C + I + G + NX For private closed economy the equation is: Y = C + I , and AE (aggregate expenditure) = C + I Gross Domestic product (GDP) is the monetary value of all goods and services produced in the US.
1.2. In the table below is data for a hypothetical private-closed economy.
Table 1 A Private Closed Economy
|
Real domestic output (GDP=DI) (billions) |
Consumption (billions) |
Saving (billions) |
Investment (billions) |
Aggregate Expenditures (billions) |
|
|
|
|
|
|
|
$240 260 280 300 320 340 360 380 400 |
$244 260 276 292 308 324 340 356 372 |
$ -4 0 4 8 12 16 20 24 28 |
$16 16 16 16 16 16 16 16 16 |
$260 276 292 308 324 340 356 372 388 |
|
|
|
|
|
|
Recall, private means that there is no government and closed means that there is no foreign trade.
Use the information in the Table 1 to analyze aggregate expenditures (AE) model below (Figure 1. Equilibrium in a Private Closed Economy).
Figure 1. Equilibrium in a Private Closed Economy
See the attached graph.
1.3. Identify the mistake and explain why the graph of the aggregate expenditures line does not correctly illustrate the economy's equilibrium.
1.4. Create a graph for the aggregate expenditures (AE) model in Excel using the data from Table 1: A Private Closed Economy.
Watch the tutorial: How to Create a Basic Chart in Excel.
Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP. Aggregate expenditure and GDP are both function of consumption, investment, government spending, and net exports.
So, the equations for the two are identical:
Y = C + I + G + NX, and AE (aggregate expenditure) = C + I + G + NX
For private closed economy the equation is:
Y = C + I , and AE (aggregate expenditure) = C + I
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