--%>
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 : Would inflation targeting be a good

    Question: Why might it be difficult for the Fed to formally adopt inflation targeting?  Would inflation targeting be a good policy for the Fed in the present economic environment?

    Q : Assignment Task 1 – Commercial banks in

    Task 1 – Commercial banks in United Economy have total deposits of AED 300 billion. Their reserves are AED 15 billion, two- thirds of which are with the Central Bank as deposits. There are AED 30 billion notes outside the banks. There are no coins! Calculate- a) The monetary base. b) The bank

    		•
  • 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

    		•
  • Q : Problem of Financial Capital for direct

    The direct economic resources a farmer employs to generate avocadoes would not comprise: (I) human capital in form of expertise regarding growing avocadoes. (II) fertile land. (III) loans from a bank to finance SUCH year’s crop. (IV) machinery,

    		•
  • Q : Equilibrium of a market How can

    How can Equilibrium of a market be exist?

    		•
  • Q : Example of microeconomic issue Hey

    Hey friends i need your support for justify the problem that is given below: If the United Auto Workers Union acquires benefit package and a large wage from GM, Ford, and Chrysler which increases the cost of U.S. cars, it is a

  • Q : Define Quantity of a good Quantity of a

    Quantity of a good: The quantity of a good which buyers demand is found out by the price of the good, income, the prices of associated goods, expectations, tastes, and the number of buyers.

    		•
  • Q : National income how to calculate

    how to calculate national income under value added method

    		•
  • Q : Define fiscal policy Define fiscal

    Define fiscal policy? Answer: Fiscal policy is the revenue and expenditure policy of government with a view to combat the state of inflationary or deflationary gap

    		•
  • Q : How banking evolved into the

    Give a short history of how banking evolved into the sophisticated operation. Start first with the Goldsmith and sum up with the Banking system which we experience nowadays.

    		•