March 21, 2018 

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AGGREGATE EXPENDITURE LINE: A line representing the relation between aggregate expenditures and gross domestic product used in the Keynesian cross. The aggregate expenditure line is obtained by adding investment expenditures, government purchases, and net exports to the consumption line. As such, the slope of the aggregate expenditure line is largely based on the slope of the consumption line (which is the marginal propensity to consume), with adjustments coming from the marginal propensity to invest, the marginal propensity for government purchases, and the marginal propensity to import. The intersection of the aggregate expenditures line and the 45-degree line identifies the equilibrium level of output in the Keynesian cross.

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Lesson 1: Economic Basics | Unit 3: The Economy Page: 7 of 18

Topic: An Economy <=PAGE BACK | PAGE NEXT=>

Because of the scarcity problem, we need a way to divide up what we have. This is accomplished by an economy.

An economy is a system of production, distribution, and consumption of resources, goods, and services that addresses the basic economic problem of scarcity and answers the three questions of allocation: What? How? For Whom?

Economies rely on markets and government to perform the allocation task.

The allocation processes involves the institutions of:

  • Markets allocate resources through voluntary choices made by people--buyers and sellers.
  • Government allocates resources through involuntary taxes, laws, restrictions, and regulations imposed on these people.
Both are important methods of allocation.

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Real world markets are heavily populated by oligopoly. About half of all output produced in the U.S. economy each year is done so by oligopoly firms. Other industrialized nations can make a similar claim. Oligopoly markets arise in a wide assortment different industries, ranging from manufacturing to retail trade to resource extraction to financial services.

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Today, you are likely to spend a great deal of time looking for a downtown retail store trying to buy either an AC adapter for your CD player or storage boxes for your family photos. Be on the lookout for rusty deck screws.
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It's estimated that the U.S. economy has about $20 million of counterfeit currency in circulation, less than 0.001 perecent of the total legal currency.
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