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Aggregate Expenditures Model

[Summary]ECON 151: Macroeconomics The Aggregate Expenditures Model Section 01: The Aggregate Expenditures Model Now we will build on your understanding of Consumption and Investment to form what is called the Aggregate Expenditures Model. This model is used a

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ECON 151: Macroeconomics

The Aggregate Expenditures Model

Section 01: The Aggregate Expenditures Model

Now we will build on your understanding of Consumption and Investment to form what is called the Aggregate Expenditures Model. This model is used as a framework for determining equilibrium output, or GDP, in the economy. When we developed the Consumption Function in a previous lesson, we stated that Consumption was a function of Disposable Income. In this model, we return to the assumption of the Circular Flow Model that the production of the final goods and services in the economy (the GDP) results in a flow of income that is exactly equal to the value of that output. Since the GDP is equal to Income, we can model the Spending (for now just Consumption and Investment) in the economy in terms of GDP instead of in terms of Income.

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INJECTIONS-LEAKAGES MODEL:

A macroeconomic model that balances non-consumption expenditures on production (injections) and non-consumption uses of income (leakages) that is used to identify the equilibrium level of, and analyze disruptions to, aggregate production and income. The injections-leakages model is based on the principles of Keynesian economics and provides an alternative to the standard aggregate expenditures (Keynesian cross) analysis. The three injections included in the model are investment expenditures, government purchases, and exports. The three leakages included in the model are saving, taxes, and imports. Three variations are the two-sector injections-leakages model (or saving-investment model), three-sector injections-leakages model, and four-sector injections-leakages model.

Chapter 09

Introduction-What Determines GDP?

This chapter and the next focus on the aggregate expenditures model.We use the definitions and facts from previous chapters to shift our study to the analysis of economic performance.The aggregate expenditures model is one tool in this analysis.Recall that "aggregate" means total.

Aggregate Expenditure at Economic Equilibrium

Aggregate Expenditure

In economics, aggregate expenditure is the current value (price) of all the finished goods and services in the economy. The equation for aggregate expenditure is AE = C+ I + G + NX.

Written out in full, the equation reads: aggregate expenditure = household consumption (C) + investments (I) + government spending (G) + net exports (NX).

Defining Aggregate Expenditure: Components and Comparison to GDP

Aggregate Expenditure

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. The equation for aggregate expenditure is: AE = C + I + G + NX.

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