2009-10-5
1
Output and Expenditure in the
Short Run
1
Output and Expenditure in the Short Run
Aggregate expenditure model
A macroeconomic model that focuses
on the relationship between total
spending and real GDP, assuming that
the price level is constant.
2
The Aggregate Expenditure Model
Learning
Objective
11.1
Aggregate expenditure (
AE
)
The total amount of spending in the
economy:
the sum of consumption,
planned investment, government
purchases, and net exports.
Aggregate Expenditure
• Consumption (
C
)
• Planned Investment (
I
)
• Government Purchases (
G
)
• Net Exports (
NX
)
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The Aggregate Expenditure Model
Aggregate expenditure = Consumption + Planned
investment + Government purchases + Net exports
Aggregate Expenditure
Learning
Objective
11.1
or:
AE = C + planned investment + G + NX
Note that:
GDP = C + Actual investment + G + NX
4
The Aggregate Expenditure Model
Inventories
Goods that have
been produced but not yet sold.
The Difference between Planned Investment
and Actual Investment
Learning
Objective
11.1
When actual investment
≠
planned investment,
Aggregate expenditure = GDP
Macroeconomic Equilibrium
When actual investment
inventories change.
5
The Aggregate Expenditure Model
Learning
Objective
11.1
In this chapter we will focus on short-run
fluctuation. To simplify the analysis, we will
assume that the economy is not growing.
Then the equilibrium GDP will not change
unless AE changes.
Therefore we can highlight the importance of
the changes in AE.
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