30.1 Expenditure Plans and Real GDP
MyEconLab Concept Video
When the government spends $1 million on a highway construction project, does that expenditure stimulate consumption expenditure in a multiplier effect? This question lies at the core of this chapter.
To answer the question, we use the aggregate expenditure model, a model that explains what determines the quantity of real GDP demanded and changes in that quantity at a given price level.
The aggregate expenditure model—also known as the Keynesian model—was originally designed to explain what happens in an economy in deep recession when firms can’t cut their prices any further but can increase production without raising their prices, so the price level is actually fixed. The severity ...
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