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In Keynesian 45 degree diagram, at the intersecting point between the line representing and the line representing and , total spending of are exactly equal to national income or real GDP. This means that the amount that is bought is exactly equal to the amount that is actually produced. This is the level of output in this model, shown as Ye. What happens when real GDP produced is less than Ye? If the amount consumers, firms, government and foreign countries want to buy is than the quantity of real GDP, then there is insufficient output to satisfy total expenditure. On the other hand, if real GDP is greater than Ye, the amount that consumers and firms want is bought is than real GDP produced. Too many goods and services are being produced relative to total expenditure.

In Keynesian 45 degree diagram, at the intersecting point between the line representing and the line representing and , total spending of are exactly equal to national income or real GDP. This means that the amount that is bought is exactly equal to the amount that is actually produced. This is the level of output in this model, shown as Ye. What happens when real GDP produced is less than Ye? If the amount consumers, firms, government and foreign countries want to buy is than the quantity of real GDP, then there is insufficient output to satisfy total expenditure. On the other hand, if real GDP is greater than Ye, the amount that consumers and firms want is bought is than real GDP produced. Too many goods and services are being produced relative to total expenditure.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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In Keynesian 45 degree diagram, at the intersecting point between the line representing and the line representing and total spending of are exactly equal to national income or real GDP. This means that the amount that is bought is exactly equal to the amount that is actually produced. This is the level of output in this model, shown as Ye. What happens when real GDP produced is less than Ye? If the amount consumers, firms, government and foreign countries want to buy is than the quantity of real GDP, then there is insufficient output to satisfy total expenditure. On the other hand, if real GDP is greater than Ye, the amount that consumers and firms want is bought is than real GDP produced. Too many goods and services are being produced relative to total expenditure. With too much spending relative to output produced, firms' inventories are sold, thus providing firms with the signal to production, causing real GDP to to Ye. With too little spending relative to what is produced, firms inventories increase, providing firms with the signal that they are producing too much, causing them to production, so real GDP to Ye. Through this mechanism involving changes in inventories that provide signals to firms on whether they should produce less or more, equilibrium_ is restored. The equilibrium level of output need not be equal to potential output. When Ye is less than Yp, there is an output gap called a output gap. At than the natural rate of Ye, there is unemployment and recession. Actual equilibrium output is than potential output, and unemployment is_ unemployment. For potential output to be achieved, it would be necessary for aggregate expenditures to increase to close the deflationary the increase of injections: and When Ye is greater than Yp, and there is an output gap called a gap. Actual equilibrium output is gap through output than potential output, and unemployment is than the natural rate of unemployment. For potential output to be achieved, it would be necessary to have expenditures. aggregate In the Keynesian cross model, equilibrium can occur at any level of output, and there is nothing to guarantee that the equilibrium level of output will be the same as potential output. Negative gap may persist indefinitely. gap or positive
Transcribed Image Text:In Keynesian 45 degree diagram, at the intersecting point between the line representing and the line representing and total spending of are exactly equal to national income or real GDP. This means that the amount that is bought is exactly equal to the amount that is actually produced. This is the level of output in this model, shown as Ye. What happens when real GDP produced is less than Ye? If the amount consumers, firms, government and foreign countries want to buy is than the quantity of real GDP, then there is insufficient output to satisfy total expenditure. On the other hand, if real GDP is greater than Ye, the amount that consumers and firms want is bought is than real GDP produced. Too many goods and services are being produced relative to total expenditure. With too much spending relative to output produced, firms' inventories are sold, thus providing firms with the signal to production, causing real GDP to to Ye. With too little spending relative to what is produced, firms inventories increase, providing firms with the signal that they are producing too much, causing them to production, so real GDP to Ye. Through this mechanism involving changes in inventories that provide signals to firms on whether they should produce less or more, equilibrium_ is restored. The equilibrium level of output need not be equal to potential output. When Ye is less than Yp, there is an output gap called a output gap. At than the natural rate of Ye, there is unemployment and recession. Actual equilibrium output is than potential output, and unemployment is_ unemployment. For potential output to be achieved, it would be necessary for aggregate expenditures to increase to close the deflationary the increase of injections: and When Ye is greater than Yp, and there is an output gap called a gap. Actual equilibrium output is gap through output than potential output, and unemployment is than the natural rate of unemployment. For potential output to be achieved, it would be necessary to have expenditures. aggregate In the Keynesian cross model, equilibrium can occur at any level of output, and there is nothing to guarantee that the equilibrium level of output will be the same as potential output. Negative gap may persist indefinitely. gap or positive
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