Models of Macro Economic Equilibrium

TOPIC IV: The Income Expenditure Model: The Complete Model Reconciled With Aggregate Demand Aggregate Supply Model

OBJECTIVES: 
  1. explain the components of planned expenditures in the more complete income expenditure model.
  2. define, calculate, and explain the marginal propensity to import and its affects on the slope of the planned expenditure line.
  3. explain the short run affects of an increase (or decrease) in an autonomous expenditure using the AS/AD model and the income expenditure model.
  4. explain the long run affects of conditions cited in objective 3.

KEY CONCEPTUAL QUESTIONS 

  1. How can the income expenditure model be reconciled with the aggregate supply and demand model?