--%>
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 : For every value of real GDP planned

    planned investment. planned saving. the difference between planned saving and actual saving. the difference between planned investment and actual saving.

    		•
  • Q : Business fixed investment-Inventory

    Describe the following terms: (i) Business fixed investment (ii) Inventory Investment (iii) Residential construction Investment (iv) Public Investment.

  • Q : Calculating National Income Let suppose

    Let suppose NDPFC is Rs. 1,000 crores, and NFA is Rs. (--) 5crores, then what will be national income (NNPFC)? Answer: NNPFC = NDPFC+NFA = 1000 + (-5) = Rs. 995 crores.

    		•
  • Q : Supply use two market diagrams to

    use two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enrollments in both public and private colleges?

    		•
  • Q : Why is tax not a capital receipt

    Illustrate, why is tax not a capital receipt?

    		•
  • Q : Development economics Government tax

    Government tax and transfer payments generally

    		•
  • Q : Tax shifting forward totally A tax is

    A tax is shifted forward when the tax burden causes the: (w) consumers to pay higher prices. (x) lower purchasing power for the party bearing the legal incidence. (y) workers to experience lower take home wages. (z) decreased dividends to corporate st

    		•
  • Q : Why value of multiplier is low In poor

    In poor countries people spend a big percentage of their income so that APC and MPC are high. Yet, the value of multiplier is low. Explain why?

    		•
  • Q : Tax shifting backward totally A tax

    A tax will be backward-shifted totally when the: (i) demand curve is vertical and the supply curve is slopes up. (ii) demand curve slopes down and the supply curve is vertical. (iii) supply curve is perfectly elastic and the demand cu

    		•
  • Q : What is multiplier Multiplier : The

    Multiplier: The Multiplier is the ratio of change in income by the change in investment. Multiplier (k) = ΔY/ΔI

    		•