--%>
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 : Conditions through which the supply

    What are the conditions through which the supply curve will shift?

    		•
  • Q : Value of imports of goods The country’s

    The country’s balance of trade is Rs.500 crores. The value of exports of goods is Rs. 650 crores. What is the value of imports of goods?

    		•
  • Q : Long-term Federal government budget

    Question: Explain why there are long-term Federal government budget problems.   Explain why the base-line forecast of the CBO is misleading. Include in your answer why solutions to the problem will necessarily involve a decision about which

    		•
  • Q : How central bank reduce the

    Describe any two measures by which a Central Bank can attempt to decrease the gap. Answer: Central bank can decrease this gap by adopting two measures illustrated b

    		•
  • Q : Project Include graphs and should be 15

    Include graphs and should be 15 pages long

    		•
  • Q : What is Equilibrium quantity

    Equilibrium quantity: It is the quantity supplied and the quantity demanded at equilibrium price.

    		•
  • Q : Receipts from taxes Why are receipts

    Why are receipts from taxes classified as revenue receipts? Answer: Receipts from taxes are classified as revenue receipts since they do not build liabilities nor r

    		•
  • Q : FDI WHAT ARE THE STRENGTH AND WEAKNESS

    WHAT ARE THE STRENGTH AND WEAKNESS OF THE THEORY OF FOREIGN DIRECT INVESTMENT

    		•
  • Q : Market imperfection associated with

    Question: This assignment in Economics, deals with macro-economics. An essay on Market imperfection associated with negative externalities. According to Economics, perfect markets would require an "invisible hand" to allocate all the resources to be a

    		•
  • Q : Paradox of Value-High values of

    The fact that most of the necessities for life like water are priced much lower than the frivolities like diamonds is addressed by the: (1) Utilitarian enigma. (2) Law of diminishing marginal utility. (3) Rational ignorance of hypothesis. (4) Paradox of the value. (5)

    		•