--%>
Assignment Help - homework help

Aggregate Expenditure model

Describe Aggregate Expenditure model and also state AD/AS model?

E

Expert

Verified

Aggregate Expenditure(AE) is a a way to measure the Gross Domestic Product, GDP, or National Income (NI).It is a measure of the level of economic activity.

GDP = C + I + G + Xn, where

I = Ip + Iu.

AE = C + Ip + G + Xn, where

C = Consumption Expenditure (CE)
Ip = Planned Investment
Iu = Unplanned Investment
G = Government expenditure
Xn = Net Exports (Exports-Imports)

AE is also used in the Aggregate Demand-Aggregate Supply Model (AD/AS) and includes Price changes.

In the model, Aggregate Expenditure (AE) is defined as the amount that firms and households plan to spend on goods and services at each level of income, which is nothing but the total of expenditures on consumption, investment, government expenses and net exports.

AD=C+I+G+X-M (function of price)
AE=C+I+G+X-M (function of income) (DR Kevin LTL)
 
AD increase with National Output, and rising Disposable Income (DI). If the present output exceeds the equilibrium, then the inventories will accumulate; encouraging businesses to slow down or stop production. This will move the economy towards equilibrium. Again, if the level of production is below the equilibrium, inventories will decrease, causing an increase in production and hence, moving toward equilibrium. This equilibration process continues to occur when the equilibrium is stable.

   Related Questions in Macroeconomics

  • Q : Business For every value of real GDP,

    For every value of real GDP, actual investment equals? A. Planned Investments B. The difference between planned investments and actual saving. C. The difference between planned saving and actual saving. D. Planned Saving

    		•
  • Q : Price elasticity of demand for DVD games

    In this figure shown below, the price elasticity of demand for DVD games among prices of $30 and $40 is nearest to: (i) 7/6. (ii) 1/2. (iii) 3/7. (iv) 7/3. (v) 1/3.

    Q : Internet technology in airline

    Speculate regarding the behavior which could result from Internet technology in airline transactions and propose 2 or more strategies to deal with them.

    		•
  • Q : GDP gap "The economic cost of

    "The economic cost of unemployment is measured by the GDP gap." Explain this statement. ?

    		•
  • Q : Fiscal and monetary policies in

    Explain the impact of changes in fiscal and monetary policies in curtailing inflation?

    		•
  • Q : Market Economy Explain the statement "

    Explain the statement "Hypothes is the basic short run and long run behaviors of the airline industry in a market economy".

    		•
  • Q : Shifting of market problem When this

    When this market starts in equilibrium at point e on S0D0 and then young American families rousingly “inherit” furniture as their baby-boomer parents shift into smaller retirement homes, then this market will tend to shift in the direction of: (i) point i.

    		•
  • Q : Objective of government Budget Give

    Give some objective of government Budget. Answer: The objectives which are pursued by government via the budget are as follows: A) To attain economic growth. B) To decrease in equalities in income and wealth.

    		•
  • Q : Interest receipt Why is interest

    Why is interest received classified as revenue receipt? Answer: Interest received is a revenue receipt since it does not build any liability nor it leads to the red

    		•
  • Q : Explain Product Market Equilibrium. To

    To begin with, let us recall our three-sector product-market equilibrium model given as C + I + G = C + S + TTo this three-sector model, we now add the foreign trade-the exports (X) and imports

    		•