Aggregate Expenditure model
Describe Aggregate Expenditure model and also state AD/AS model?
Expert
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 InvestmentIu = Unplanned InvestmentG = Government expenditureXn = 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.
The balance of trade demonstrates a deficit of Rs 300 crore. The values of exports are Rs 500 crore. Determine the value of imports? Answer: Q : Change in stock Why change in stock is Why change in stock is considered a portion of final expenditure? Answer: The Unsold stocks left with producers are supposed as purchased by the producers themselve
Why change in stock is considered a portion of final expenditure? Answer: The Unsold stocks left with producers are supposed as purchased by the producers themselve
Differentiate between APC and MPC. The value of which of them can be greater than another and when? Answer: APC is the average
Whenever you dine at an “all-you-can-eat” buffet, the rational consumption prototype is to carry on eating till: (1) The restaurant goes bankrupt. (2) You have eaten as much food as it would encompass cost had you made your own meal at hom
If households become more willing to hold less cash and more stocks or bonds, the
What is "demand-pull" inflation?
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
The usual household maximizes the utility by spending all its money to purchase and consume a combination of goods which yields: (1) Fundamental physiological requirements and customary wants. (2) Maximum status and the social prestige. (3) Complete satisfaction of al
Illustrate, why is tax not a capital receipt?
The economic effects of inflation are all pervasive. It affects all those who depend on the market for their livelihood. The effects of inflation may be favorable or unfavorable, and low or high depending on the rate of inflation. For example a galloping the hyper inf
18,76,764
1951514 Asked
3,689
Active Tutors
1451324
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!