--%>

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 : Meaning of Fiscal policy Meaning of

    Meaning of Fiscal policy:Fiscal policy is the set of decisions and principles of a government regarding the extent of public expenses and mode of financing them. It is about the attempt of g

  • Q : Merger and acquisition of firms

    Question: Suppose firm 1 and firm 2 merge. Call the new firm A. It has output xA and profit πA. Suppose there is Cournot competition after the merger. For now, we assume that the marginal cost of Firm A, the mer

  • Q : Project Include graphs and should be 15

    Include graphs and should be 15 pages long

  • Q : Base of categorizing receipts into

    What is the base of categorizing receipts into revenue and capital receipts?

  • Q : What is substitutes Substitutes : The

    Substitutes: The two goods for which a rise in the price of one good leads to a rise in the demand for another.

  • Q : From the heterodox approach From the

    From the heterodox approach, what options does the enterprise have to produce more output? What impact do these options have on its cost structure?

  • Q : Redistribution of Income through budget

    Redistribution of Income: Each and every economy strives to achieve a society, where inequality of income and wealth must be minimum. In order to attain this objective via government budget the government spends adequate money on social security schem

  • Q : Define voluntary unemployment Voluntary

    Voluntary unemployment: It refers to a condition when person are not willing to do work at customary market wage rate, though they are receiving a work.

  • Q : Article on Agriculture and economic

    Read the article on blackboard in the assignments area, John McCallum "Agriculture and economic development in Ontario and Quebec until 1870", Gordon Laxer, ed. Perspectives on Canadian Economic Development: Class, Staples, Gender and Elites (Toronto: Oxford Universit

  • Q : Difference between

    Elucidate the differences among the frictional, structural, and cyclical forms of unemployment.