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THREE-SECTOR KEYNESIAN MODEL: A model used to identify equilibrium in Keynesian economics based on aggregate expenditures by the three domestic sectors (household, business, and government). Equilibrium is achieved at the intersection of the aggregate expenditures line, AE = C + I + G, and the 45-degree line, Y = AE. This is Keynesian aggregate expenditures model can be used to analyzed the impact of government fiscal policy on aggregate expenditures and equilibrium.

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Lesson 12: Business Cycles | Unit 5: Policies Page: 26 of 26

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  • How stabilization policies can limit or prevent the unemployment and inflation problems caused by business cycle instability.
  • The two main types of stabilization problems, fiscal policy and monetary policy.
  • How expansionary fiscal policy counters contractions with more spending and lower taxes.
  • How expansionary monetary policy counters contractions with more money.
  • How contractionary fiscal policy counters expansions with less spending and higher taxes.
  • How contractionary monetary policy counters expansions with less money.

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PAYMENT FLOW

In the circular flow, the transfer of money in payment in exchange for the counter-clockwise physical flow of goods and services. The payment flow is the monetary payment for goods and services received by the household sector from the business sector through product markets and the monetary payment for resource services obtained by the business sector from the household sector through resource markets. The payment flow is usually illustrated as a clockwise flow for a model with the product markets at the top, resource markets at the bottom, household sector at the left, and business sector at the left. The physical flow moves in the opposite direction.

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Today, you are likely to spend a great deal of time flipping through mail order catalogs trying to buy either 500 feet of coaxial cable or a coffee cup commemorating the 1960 Presidential election. Be on the lookout for telephone calls from former employers.
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During the American Revolution, the price of corn rose 10,000 percent, the price of wheat 14,000 percent, the price of flour 15,000 percent, and the price of beef 33,000 percent.
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