wk3/4 keynesian economics and macroeconomic equilibrium

• Key assumptions of keynes

  Simple closed economy with no government sector, wages and prices are fixed in short run. Increase in aggregate demand leads to increase in output not rise in aggregate price level or wages (the aggregate supply curve is horizontal up until the full level of output). Science in short run firms set prices and hold them fixed then quantities they sell depend on demand not supply. Aggregate demand determines the quantity ie the real gdp 
• Modelling investment

  exogenous variable determined outside the model, later is made dependent on interest rate. In general depends on expectations of future demand growth, business confidence as well as interest rate, remains constant at 100