Managerial Economics

Chapter 18

Keynesian Model or income Determination in a Two-sector Economy, Shifts in Aggregate Demand and Multiplier

After studying this chapter, you should be able to understand:

• Aggregate demand is the total amount of goods demanded in an economy.
• The consumption function is a relationship between income and consumption.
• Saving is income that is not spent on consumption.
• The aggregate demand function is obtained by a vertical summation of the investment function and consumption function.
• In the Keynesian theory, there are two approaches to the determination of income and output: aggregate demand–aggregate supply approach and saving–investment approach.
• A shift in the aggregate demand function results in a change in the equilibrium income ...