The simple aggregate expenditures model discussed in this chapter concluded that one form of spending was just as good as any other; increases in all types of spending lead to equal increases in income. Is there any reason to suspect that private investment might be better for the economy than government spending?

The Image attached titled Table 1 is data for a hypothetical private-closed economy. Use the information in the Table 1 to analyze aggregate expenditures (AE) model attached (Figure 1. Equilibrium in a Private Closed Economy). Question 1 Identify the mistake and explain why the graph of the aggregate expenditures line does not correctly illustrate the economy's equilibrium.   Question 2  Chart the aggregate expenditures (AE) model in Excel using the data from Table 1: A Private Closed Economy.   Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP.  Aggregate expenditure and GDP are both function of consumption, investment, government spending, and net exports.             So, the equations for the two are identical: Y = C + I + G + NX, and AE (aggregate expenditure) = C + I + G + NX For private closed economy the equation…

Depict graphically the aggregate expenditures model for a private closed economy. Now show a decrease in the aggregate expenditures schedule and explain why the decline in real GDP in your diagram is greater than the initial decline in aggregate expenditures. What would be the ratio of a decline in real GDP to the initial drop in aggregate expenditures if the slope of your aggregate expenditures schedule was .8?

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