equilibrium

• Gpd-  where aggregate demand equals national output
• Investment is made up of planned and unplanned investment I= Ip + Iu, unplanned investment may be negative or positive
• If we define Y - C as savings then clear that national income is equilibrium when S = I (planned)
• represented graphically by point where aggregate expenditure curve cuts 45 degree line, total desired expenditure equals total output, same level of GDP were saving function intersects investment function, where W = J and E = Y
• Keynes argued that there is no reason to expect the planned investment to be equal to planned savings at the full time employment level of output.
• The idea of the multiplier- an increase in investment increases aggregate expenditure and real GDP, the increase in real GDP leads to an increase in induced expenditure, leads to a further increase in aggregate expenditure and real GDP, so real GDP increases by more than the initial increase in autonomous expenditure. 1 / 1 - mpc
• The paradox of thrift- if we could get economic agents to save less then it would be possible to get full employment level of output and yet paradoxically the level of aggregate savings would be equal to the level at less than full employment level of income. Starts the multiplier effect.
• According to classical economists if there is unemployment a reduction in wages would lead to rise in demand for labour and solve this problem. Keynes argued money wages are sticky downwards, what may be true at a micro level is not true at a macro level, economy is suffering from a lack of aggregate demand as well as consumer and business confidence, worsening the recession and in turn unemployment not reducing it.
• Fiscal policy- governments decisions about spending and taxes 
• Stabilisation policy- government actions to try keep output close to potential level
• Budget deficit- excess of government outlays over government receipts
• National debt- stock of outstanding government debt