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What is the relationship between aggregate planned expenditure and real GDP at equilibrium expenditure? Equilibrium expenditure is the level of aggregate expenditure when aggregate planned expenditure equals real GDP. Equilibrium expenditure equals the real GDP at which the AE curve intersects the 45° line.
How does aggregate expenditure relate to real GDP? Each level of real GDP will result in a particular amount of aggregate expenditures. If aggregate expenditures are less than the level of real GDP, firms will reduce their output and real GDP will fall. If aggregate expenditures exceed real GDP, then firms will increase their output and real GDP will rise.
How is equilibrium real GDP obtained using the aggregate expenditures model? The GDP is calculated using the Aggregate Expenditures Model. A shift in supply or demand impacts the GDP. An economy is at equilibrium when aggregate expenditure is equal to the aggregate supply (production) in the economy. The economy is not in a constant state of equilibrium.
Is planned aggregate expenditure the same as GDP? The aggregate expenditure model relates the components of spending (consumption, investment, government purchases, and net exports) to the level of economic activity. GDP = planned spending = consumption + investment + government purchases + net exports.
Aggregate Income = GDP = Aggregate Expenditure.
**The expenditure approach adds up the total spending on new production, while the income approach adds up all of the income earned by the resource suppliers in producing those goods and services. And in the end they add up to the same thing GDP.
Its because there is a circular flow between income and expenditure. They’re always equal to each other. It’s not very tough to realize why. Its because there is a circular flow between income and expenditure.
Equilibrium GDP is to the right of full employment GDP. Equilibrium GDP is greater than full employment GDP when there is an inflatory gap. Equlibrium GDP is too large. To close gap, G spending needs to drop or raise taxes, both will reduce spending and reduce GDP.
According to the Keynesian model of macroeconomics, aggregate planned expenditure (PE) is determined as the sum of planned consumption expenditures (C), planned investment expenditures (I), planned government expenditures (G) and planned net exports (NX):
When planned aggregate expenditure is less than real GDP, as in the diagram to the right, what happens to firms’ inventories? Inventories accumulate if production is not scaled back.
The expenditure-output model determines the equilibrium level of real gross domestic product, or GDP, by the point where the total or aggregate expenditures in the economy are equal to the amount of output produced.
Which statement is true about inventories at equilibrium GDP? There are no unplanned changes in inventories.
Macroeconomic equilibrium occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied at the point of intersection of the AD curve and the AS curve.
Therefore, when aggregate expenditure is less than GDP, inventories will increase forcing companies to slow down production to compensate for the reduction in expenditures. This will lead to a decrease in both real GDP and employment. Table 9.1 summarizes the three possibilities. The macroeconomy is in equilibrium.
Aggregate income is a form of GDP that is equal to Consumption expenditure plus net profits. ‘Aggregate income’ in economics is a broad conceptual term. There are a number of ways to measure aggregate income, but GDP is one of the best known and most widely used.
The correct answer is a. Firms payout as incomes (aggregate income) everything they receive from the sale of their output (aggregate expenditure).
Aggregate Output is the total amount of output produced and supplied in the economy in a given period. Aggregate Income is the total amount of income received by all factors of production in an economy in a given period.
The aggregate expenditure schedule shows how total spending or aggregate expenditure increases as output or real GDP rises. The intersection of the aggregate expenditure schedule and the 45-degree line will be the equilibrium. Equilibrium occurs at E0, where aggregate expenditure AE0 is equal to the output level Y0.
Answer: If a country exports a greater value than it imports, it has a trade surplus or positive trade balance, and conversely, if a country imports a greater value than it exports, it has a trade deficit or negative trade balance.
We sum together consumption expenditure, investment, government expenditure on goods and services, and net exports when we are measuring GDP using the expenditure approach. Consumption expenditure makes up just over 55 percent of GDP.
The natural rate of unemployment is related to two other important concepts: full employment and potential real GDP. The economy is considered to be at full employment when the actual unemployment rate is equal to the natural rate. When the economy is at full employment, real GDP is equal to potential real GDP.
The equilibrium GDP and the full-employment GDP may differ. A recessionary expenditure gap is the amount by which aggregate expenditures at the full-employment GDP fall short of those needed to achieve the full-employment GDP. This gap produces a negative GDP gap (actual GDP minus potential GDP).
If the real GDP exceeds potential GDP (i.e., if the output gap is positive), it means the economy is producing above its sustainable limits, and that aggregate demand is outstripping aggregate supply. In this case, inflation and price increases are likely to follow.
Planned spending is composed of autonomous spending (the amount of spending when real GDP equals zero) and induced spending (spending resulting from real GDP). In summary, we conclude that when income increases, planned expenditure also increases.
Unemployment increases during business cycle recessions and decreases during business cycle expansions (recoveries). Inflation decreases during recessions and increases during expansions (recoveries).
In the income‐expenditure model, the equilibrium level of real GDP is the level of real GDP that is consistent with the current level of aggregate expenditure.