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AGGREGATE EXPENDITURES 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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SAVING-INVESTMENT EQUALITY: A classical economic proposition stating that flexible prices ensure an equality between saving and investment. This equality is essential to obtain the classical economic conclusion that unrestricted markets achieve and maintain full employment. This is one of the three assumptions underlying classical economics. The other two assumptions are flexible prices and Say's law.

     See also | classical economics | flexible prices | Say's law | full employment | saving | investment | Keynesian economics | injection-leakage model | laissez faire | invisible hand |


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FULL EMPLOYMENT, PRODUCTION POSSIBILITIES

Full employment is the condition that exists when all available resources are engaged in the production of goods and services. In other words, all resources that could be used for production are being used. This is indicated in production possibilities analysis by producing a combination of goods that places the economy on the production possibilities curve.

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