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

Quality of health care, Explain how changes in the quality of health care w...

Explain how changes in the quality of health care will influence the demand for care.

Problem with the keynesian model, The problem with the Keynesian model ...

The problem with the Keynesian model We can classify two problems with the Keynesian model as developed so far: 1. Π is exogenous. Although inflation may temporarily deviate

What do you mean by yield curve, Q. What do you mean by yield curve? Yi...

Q. What do you mean by yield curve? Yield curve is a graph of interest rates of different maturity (recalculated to yearly rates) at a specific point in time. It's common for t

Simultaneous determination of y in the is-lm model, Q. Simultaneous determi...

Q. Simultaneous determination of Y in the IS-LM model? Simultaneous determination of Y and R in the IS-LM model   By combining IS curve and LM curve, we can graphically e

What is price level, The price level is the monetary value of a good or ser...

The price level is the monetary value of a good or service.

Production possibilities table for consumer goods, To the right is a produc...

To the right is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): a. Show these data graphically. Upon what specific assumptions is t

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

State about the central bank and monetary policy, Central bank and monetary...

Central bank and monetary policy By monetary policy we mean the policy directed at controlling the money supply and the interest rates. In most countries, the central bank is r

Open-market operations to influence, In your answer, discuss the Federal Re...

In your answer, discuss the Federal Reserve's use of open-market operations to influence the money supply and the respective consequences of such actions. Include a discussion of t

New equilibrium price also quantity, Take a look at the sugar market: US d...

Take a look at the sugar market: US demand: Q=60-2/3 P US domestic supply: Q=P Also, the US could import any quantity from world producers at (US$) 10/cents per lb a) In a sc

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