 Today we're going to talk about how we can use our simple model to explain whether the economy is in a recession or it's in a boom period. Now everything is going to depend according to this simple model of Keynes on planned spending. That is how much consumers want to buy and how much investors want to spend on plant and equipment. Now remember that GDP total spending in the economy depends on consumption plus investment. But now we're going to distinguish between planned spending and unplanned spending. And remember that investment takes time. Business people have to forecast how strong the economy is going to be in the future when they make their decisions on how much to invest. So we want to distinguish then between planned investment and unplanned investment. Now think about it, if you're a business person and you need to make a decision about how much to produce today, but you're not going to be able to sell it until later, then you're going to make a forecast. So let's say you decide to produce 100 widgets today, but let's say next year when you plan to sell these widgets, the economy crashes and you can only sell 50 of them, then you're going to have to take 50 of those and stick them in your inventories. That's 50 of unplanned inventory accumulation. So planned spending then is equal to consumption plus planned investment. Planned spending is equal to consumption plus planned investment. And GDP is equal to consumption plus unplanned investment. And it's all these extra inventories that you might have to build up if you don't forecast the future accurately. Now we're going to graph this and it's the graph that we're going to use in talking about our income expenditure model. So let's put on the vertical axis spending and on the horizontal axis we'll put GDP. And this line is planned spending, which is equal to consumption plus planned investment. And what it says is that as income or GDP goes up, people plan to spend more. Consumers will spend more because their income has gone up and businesses plan to invest more, build more factories, have more planned and equipment. Now we're going to draw in a line, which is a 45 degree line, and a 45 degree line takes any number on the horizontal axis, say one, and if you go over to the vertical axis, you get one. Up here, if you have 100, you go over to the vertical axis, you get 100. So the 45 degree line makes whatever is on the horizontal axis equal to what's on the vertical axis. And here's the key point, right here, we'll call it point B. What's true at this point? Well, the planned spending is equal to the actual spending. So at this point where the planned spending line crosses the 45 degree line, there's no unplanned spending, no unexpected events for investors. What they forecast they can sell when they invest, they can sell. So at this point, unplanned investment is equal to zero. And next time we'll talk about how this is the equilibrium point in the economy.