Aggregate expenditure


Aggregate expenditure

In economics, Aggregate Expenditure is a measure of national income. Basically it is one of the approaches to measure GDP. It is defined as the value of planned goods and services produced in an economy. Where GDP is defined as C + I + G + NX and I = Ip + Iu (planned + unplanned investment), Aggregate Expenditures is defined as C + Ip + G + NX, where:

C= consumption (C)I= investmentG= government spendingNX= net exports (Exports-Imports)

AE (Aggregate Expenditure) is used in conjunction with GDP in the Aggregate Expenditures Model to predict future GDP direction. In this model, when AE = GDP then the economy is in equilibrium. According to this model an economy will move towards its equilibrium causing changes in the GDP.

AE is also used in the Aggregate Demand-Aggregate Supply Model which advances the Aggregate Expenditures Model with the inclusion of Price changes.

Some textbooks choose to define aggregate expenditures as the sum of consumption and investment in a closed, private economy, dealing exclusively with amounts firms intend to invest, and not necessarily taking into account amounts that will actually be invested.

Components of Aggregate Expenditure (AE) - defined as the total amount that firms and households plan to spend on goods and services at each level of income. Also, it can be seen that the aggregate expenditure is the sum of expenditures on consumption, investment, government expenses and net exports. It is normally derived from all the components of the AD. For instance:

AD=C+I+G+X-M (function of price)AE=C+I+G+X-M (function of income) (DR Kevin LTL)


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