Last Time, You'll Remember ...

• We described need for macroeconomic theory

  • What determine Aggregate Spending and Aggregate Income?

• We identifed investment spending as the most volatile component of GDP

• Looked at Keynes' explanation of that volatility

  • Investment spending depends on businesspersons's "animal spirits" in the face of uncertainty

• Employment varies with overall output, hence is sensitive to swings in investment

• No guarantee of full employment