Aggregate demand in the cross model, Macroeconomics

Assignment Help:

Aggregate demand in the cross model

Because C and Im depends positively on Y while G, I and X are exogenous, aggregate demand YD will depend positively on Y: 

YD(Y) = C(Y) + I + G + X - Im(Y)

When Y increases, C and Im increases though since C increases more than Im, aggregate demand would increase when Y increases.  

You may react to the notation YD(Y). Though if you think of Y as the national income (GDP = national income) then YD(Y) basically tells us that aggregate demand depends on income. Aggregate demand is the total quantity of finished services and goods that all sectors (government, consumers, firms and rest of the world) together wish to buy under different conditions. Notation YD(Y) tells us that only endogenous variable which affects aggregate demand is national income. The higher the income, the more we wish to buy. YD, C, Im, S, SH, SG, SR and NT all rely on Y whereas I, G and X are exogenous. We can explain this using the following diagrams. 

1898_Aggregate demand in the cross model.png

Figure: Aggregate demand and its components

Every diagram has real GDP on the x-axis. 

  • First diagram demonstrates exports (X), imports (Im), net exports (NX) and rest of the world savings (SR). In this figure, X = 1.3 and Im = 0.56 + 0.2Y.
  • Second diagram illustrates private consumption (C), investment (I), government spending (G), net exports (NX) and aggregate demand (YD = C + I + G + NX). Here, C = 0.22 + 0.4Y, I = 0.5, G = 0.7.
  • Third diagram shows private savings (SH), public savings (SG), rest of the world savings (SR) and total savings (S = SH + SG + SR). They are created from NT = 0.26Y.

This figure précises all variables in the cross model and how they rely on Y. Essentially these dependences will be the same in all of the Keynesian models.


Related Discussions:- Aggregate demand in the cross model

Grocery store buys milk, Suppose that a grocery store buys milk for $2.10 a...

Suppose that a grocery store buys milk for $2.10 and sells it for $2.60. If the milk gets old then the grocery store can sell their unsold milk back to their wholesaler for $0.60 (

Should US laws be changed to require a shorter work week and, One constrain...

One constraint in our economy is time. As a society, we make choices about the allocation of time between work and other pursuits. In the US, most workers are eligible for overtime

Supply and demand , construct the supply and demand curves for rental housi...

construct the supply and demand curves for rental housing, indicating equilibrium rent and quantity. Show the effects on this market( i.e., on supply, demand, equilibrium rent and

Develop the null and alternative hypotheses, Because of high production-cha...

Because of high production-changeover time and costs, a director of manufacturing must convince management that a proposed manufacturing method reduces costs before the new method

International trade, what are the limits of the trade between franci and ga...

what are the limits of the trade between franci and galacia

Industrial production and agricultural production, Industrial Production an...

Industrial Production and Agricultural Production  Industrial production and agricultural production are aggregate measures of sectoral outputs. It is a common practice to divi

European commission bail, Will the Euro survives? 1. Why are Greece, Ire...

Will the Euro survives? 1. Why are Greece, Ireland, Italy, Portugal, and Spain sometimes referred to as the euros zones "peripheral countries"? 2. Why did the European commis

What is the development process, What is the development process? Deve...

What is the development process? Development is measured through outcomes that are development occurs while key indicators of human well-being enhance. A reduction of poverty

Demand for money and gdp, Q. Demand for money and GDP? The demand for m...

Q. Demand for money and GDP? The demand for money also relies on the GDP as GDP is closely associated to national income. If you choose to hold a fixed proportion of your wealt

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd