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11 .Aggregate Expenditure and Output in the Short Run

11 .Aggregate Expenditure and Output in the Short Run -...

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Aggregate Expenditure and Output in the Short Run - Aggregate Expenditure (AE) – the total amount of spending in the economy: the sum of consumption planned investment, government purchases, and net export - Aggregate Expenditure Model - a macroeconomic model that focuses on the short-run relationship between total spending and real GDP, assuming that the price level is constant - Aggregate Expenditure – consumption( c ), Planned Investment ( I ), Government Purchase ( G ) , Net Export (NX) - Aggregate Expenditure = consumption + planned investment + Government Purchases + net export - Inventories – goods that have been produced but not yet sold - Aggregate Expenditure = GDP - Five variable that determine the level of consumption 1) Current disposable income – the most important determinant of consumption is the current disposable income of households 2) Household wealth – Consumption depends in part of the wealth of household Household wealth= value of its assets – value of its liabilities 3) Expected future income- consumption depends in part on expect future income. Most people prefer to keep their consumption fairly stable from year to year, even if their income fluctuates significantly.
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