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

National income, what are the advantages and disadvantages of a national in...

what are the advantages and disadvantages of a national income and green GDP? national income figures are often used to compare living standards across countries and through time.

Money supply.., term paper on determinat and multiplier of money supply

term paper on determinat and multiplier of money supply

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

Example of fixed investment-accounting system, Example of Fixed Investment-...

Example of Fixed Investment-ACCOUNTING SYSTEM   Consider again the economy in example III. An inventor offers to construct some machines for each of the three companies which wo

Income and substitution effects of a price change, Income and Substitution ...

Income and Substitution Effects of a Price Change Indifference curve analysis can be used to separate the income effect (IE) from substitution effect (SE). This is shown in Fig

AD/AS Curve, Consider the following model of an economy that begins in a ma...

Consider the following model of an economy that begins in a macro equilibrium,

Money, determinants of money supply

determinants of money supply

Explain ad-curve at a given point in time, AD-curve, just like before, disp...

AD-curve, just like before, displays combinations of Y and P where both goods market and money market are in equilibrium. At any given instance, even when we have inflation, aggreg

Desired aggregate spending, Desired Aggregate Spending Desired aggregat...

Desired Aggregate Spending Desired aggregate spending refers to the volume of purchases of the currently produced goods and services that all spending units in the economy wish

Show the ad curve over time, Q. Show the AD curve over time? With infla...

Q. Show the AD curve over time? With inflation, AD curve will no longer be stable over time. In its place, it will glide upwards or downwards at a rate determined by growth rat

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