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Let's pause briefly and assess where we are.

We get one curve, the consumption function, that slopes upward,

and its slope is flatter than the aggregate production curve.

We've also got two other curves that by Keynesian assumptions

are horizontal lines the investment and the government expenditure functions.

If we vertically sum these curves we arrive

at the aggregate expenditures function and the important point to note is that.

Because the investment in government expenditure

functions are both horizontal lines the slope

of the aggregate expenditures function would be

the same slope as the consumption function.

Of course we already know what that slope is a marginal propensity to consume,

this complete aggregate expenditures curve is illustrated in this figure,

in the figure the full employment output is $900 billion.

But the economy is stuck at a recessionary output of $800 billion where the

aggregate expenditures curve AE crosses the 45

degree line of the aggregate production curve AP.

Now in the Keynesian model expansionary

fiscal policy can be used to close this $100 billion recessionary gap.

But, before we can demonstrate this, we've got one more

concept we must master, the so called Keynesian expenditure multiplier.

The Keynesian expenditure multiplier, is the number by which a change in

aggregate expenditures, must be multiplied in order to determine the resulting change

in total output.

This multiplier is greater than 1 and the reason is that income

is re-spent, not just once but many times after the initial increase.