Keynesian Theory of Consumption

Added on - 17 Feb 2021

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TABLE OF CONTENTSQuestion 1.............................................................................................................................................3Question 2.............................................................................................................................................4Question 3.............................................................................................................................................4Question 4.............................................................................................................................................5REFERENCES.....................................................................................................................................6APPENDIX..........................................................................................................................................7Calculation for Aggregate consumption and expenditure....................................................................8
Question 1Economic equilibrium is a condition within which economic forces for instance demand andsupply are balanced and in the absence of external affects the equilibrium values of economicvariables will not change (Jarrow, 2018). For example – as per the standard textbook model ofperfect competition, equilibrium takes place at the point at which quantity demanded & the quantitysupplied are equal. In this case market equilibrium is a situation in which market price is developedthrough competition in such a way that the amount of services and goods.1.Most pressing economic problem with the economy.The most pressing economic problem within the economy is the expenditure, according tothe above diagram or expenditure-output model determines the equilibrium level of real grossdomestic product or GDP by the point where the aggregate or total expenditure in the economywhich are equal to the amount of output produced (Auclert and Rognlie, 2018). The fundamentalideas of Keynesian economics were created before the aggregate demand or supply waspopularised. Keynesian economics was generally explained with a different model known as theexpenditure output approach. Equilibrium is a point of balance where no incentive exits to shiftaway from that result. In order to understand why the point of interaction between the aggregateexpense function and he 45-degree line is a macroeconomic equilibrium.2.Keynesian response to this problemThe Keynesian cross diagram helps to ascertain the equilibrium level of real GDP by thepoint at which the aggregate or total expenditures within the economy are equal to the amount ofoutput produced.
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