Planned aggregate expenditure

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Aggregate expenditure is the current value of all the finished goods and services in the economy. In economics, aggregate expenditure is the current value of all the finished goods and services in the economy. It is the sum of all the expenditures undertaken in the economy by the factors during a specific time period. Written out the equation is: aggregate expenditure equals the sum of the household consumption C , investments I , government spending G , and net exports NX. The aggregate expenditure determines the total amount that firms and households plan to spend on goods and services at each level of income. The aggregate expenditure is one of the methods that is used to calculate the total sum of all the economic activities in an economy, also known as the gross domestic product GDP.

Planned aggregate expenditure

The consumption function relates the level of consumption in a period to the level of disposable personal income in that period. In this section, we incorporate other components of aggregate demand: investment, government purchases, and net exports. In doing so, we shall develop a new model of the determination of equilibrium real GDP, the aggregate expenditures model. This model relates aggregate expenditures , which equal the sum of planned levels of consumption, investment, government purchases, and net exports at a given price level, to the level of real GDP. We shall see that people, firms, and government agencies may not always spend what they had planned to spend. If so, then actual real GDP will not be the same as aggregate expenditures, and the economy will not be at the equilibrium level of real GDP. As we saw in the chapter that introduced the aggregate demand and aggregate supply model, a change in investment, government purchases, or net exports leads to greater production; this creates additional income for households, which induces additional consumption, leading to more production, more income, more consumption, and so on. The aggregate expenditures model provides a context within which this series of ripple effects can be better understood. A second reason for introducing the model is that we can use it to derive the aggregate demand curve for the model of aggregate demand and aggregate supply. To see how the aggregate expenditures model works, we begin with a very simplified model in which there is neither a government sector nor a foreign sector. Then we use the findings based on this simplified model to build a more realistic model.

If they sell all of them, then there will be no change in inventory. So how does this relate to the national economy?

If you're seeing this message, it means we're having trouble loading external resources on our website. To log in and use all the features of Khan Academy, please enable JavaScript in your browser. Search for courses, skills, and videos. The Keynesian cross. About About this video Transcript. Showing how a change in government spending can lead to a new equilibrium. Created by Sal Khan.

Aggregate expenditure is the current value of all the finished goods and services in the economy. In economics, aggregate expenditure is the current value of all the finished goods and services in the economy. It is the sum of all the expenditures undertaken in the economy by the factors during a specific time period. Written out the equation is: aggregate expenditure equals the sum of the household consumption C , investments I , government spending G , and net exports NX. The aggregate expenditure determines the total amount that firms and households plan to spend on goods and services at each level of income. The aggregate expenditure is one of the methods that is used to calculate the total sum of all the economic activities in an economy, also known as the gross domestic product GDP. The gross domestic product is important because it measures the growth of the economy. Recall from chapter 4 that the investment component of GDP includes business fixed expenditures such as a business purchasing new machinery, new vehicles, building a new factory, etc. A change in inventory occurs either when a company produces a product but does not sell it causing an increase in inventory or when a company sells a previously unsold good causing a decrease in inventory.

Planned aggregate expenditure

If you're seeing this message, it means we're having trouble loading external resources on our website. To log in and use all the features of Khan Academy, please enable JavaScript in your browser. Search for courses, skills, and videos. The Keynesian cross. Use a diagram to analyze the relationship between aggregate expenditure and economic output in the Keynesian model.

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In Panel a , the intercept includes only the first two components. If for whatever reason the economy is performing, is outputting above that equilibrium point, then output which is this line. So that you can see where the economy is and use proper policies. Say that business confidence declines and investment falls off, or that the economy of a leading trading partner slows down so that export sales decline. An increase in the price level affects three components of aggregate expenditures: consumption, planned investment, and net exports. Aggregate Expenditures Model Definition What is the definition of the aggregate expenditures model? Aggregate expenditures equal the sum of consumption C and planned investment I P. We shall use this equation to determine the equilibrium level of real GDP in the aggregate expenditures model. Created by Sal Khan. Showing how a change in government spending can lead to a new equilibrium. These cookies do not store any personal information. If so, they enter the aggregate expenditures function in the same way that investment did. How is the Equilibrum above potential GDP possible whereby it reaches full employment and physical capital?

The model starts with the expenditure categories defined and measured in national accounts and described in Chapter 4. Then we can write:.

Next Section. Any income left over is profit, which becomes income to their stockholders. Generally income is either flat or increasing, but can fall during periods of economic contraction. It is important to keep in mind that aggregate expenditures measure total planned spending at each level of real GDP for any given price level. Total consumption C is shown in Panel c. You're not changing the slope of the curve. Created by Sal Khan. In the chapter on measuring total output and income, we learned that real gross domestic product and real gross domestic income are the same thing. Expenditures that vary with real GDP are called induced aggregate expenditures. Non-necessary Non-necessary. Firms will respond by increasing their level of production.