Chapter 23: The Aggregate Expenditure Model
1. Emphasize the assumption being made of a fixed price level, so that real and nominal changes are the
same.
2. Emphasize the difference between autonomous and induced consumption. Induced consumption–the
3. Emphasize that autonomous consumption (or expenditures) is not changed by a change in income a
4. For reinforcement, it is worth going through not just cases where one shifter changes, but cases where
more than one shifter changes.
5. Make sure you use examples with different MPCs to reinforce student understanding of the multiplier
process.
7. Emphasize to students that the MPC and MPS are not separate pieces of information, but different
either of them.
9. Emphasize that the 45-degree line reflects the fact that in equilibrium, output must equal expenditure.
10. Note the importance of unplanned inventory change as the signal that tells a firm whether demand is
11. It might be worth noting that one could believe in the multiplier process increasing aggregate demand
12. It can be worth going through the multiplier process with different MPCs, which also allow you to talk
about why a higher MPC implies a greater multiplier.
13. Emphasize that the multiplier process takes time, and if we only look at the eventual result, we will
14. If you want to show students a look at a more advanced application using the multiplier, you could
15. You may find an analogy between autonomous (independent of income) investment and the
autonomic (independent of conscious control) nervous system useful.
16. Emphasize that while we can go from the aggregate expenditure model to AD, and see how shifts in
