What is the aggregate expenditure line in economics?
The aggregate expenditure model relates the components of spending (consumption, investment, government purchases, and net exports) to the level of economic activity.
What is the 45-degree line in macroeconomics?
The 45-degree line shows all points where aggregate expenditures and output are equal. 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.
What causes the aggregate expenditure line to shift downward?
Downward Shifts in Aggregate Spending Downward shift in aggregate spending occurs when there is decrease in consumption spending or in investment spending. Because of a fall in the aggregate spending the AE curve will shift downward shift in the AE: First.
Is found at the intersection of the aggregate expenditures schedule and the equilibrium line?
The equilibrium level of real GDP is found at the intersection of the: aggregate expenditures schedule and the equilibrium line.
What is the equilibrium condition in the aggregate expenditure model?
The equilibrium in the diagram occurs where the aggregate expenditure line crosses the 45-degree line, which represents the set of points where aggregate expenditure in the economy is equal to output, or national income. Equilibrium in a Keynesian cross diagram can happen at potential GDP—or below or above that level.
What is Macroeconomics equilibrium?
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.
How do you calculate equilibrium aggregate expenditure?
Most simply, the formula for the equilibrium level of income is when aggregate supply (AS) is equal to aggregate demand (AD), where AS = AD. Adding a little complexity, the formula becomes Y = C + I + G, where Y is aggregate income, C is consumption, I is investment expenditure, and G is government expenditure.
Why is aggregate supply 45-degree?
The 45-degree line is a line of reference and shows all those points where aggregate expenditure and output are equal. It indicates that vertical axis measurement is equal to horizontal axis measurement. A 45-degree line represents the aggregate supply curve drawn from the origin. Was this answer helpful?
What shifts the aggregate expenditure line?
Compared to the simplified aggregate expenditures model, the aggregate expenditures curve shifts up by the amount of government purchases and net exports.An even more realistic view of the economy might assume that imports are induced, since as a country’s real GDP rises it will buy more goods and services, some of …
What does the slope of the aggregate expenditure line equal?
In Figure 28.8 “Plotting the Aggregate Expenditures Curve”, the slope of the aggregate expenditures curve equals the marginal propensity to consume. This is because we have assumed that the only other expenditure, planned investment, is autonomous and that real GDP and disposable personal income are identical.
Why is aggregate supply a 45-degree line?
What is equilibrium expenditure?
How do you calculate aggregate expenditure?
The equation for aggregate expenditure is: AE = C + I + G + NX. Written out the equation is: aggregate expenditure equals the sum of the household consumption (C), investments (I), government spending (G), and net exports (NX). Consumption (C): The household consumption over a period of time.
How do you calculate macroeconomic equilibrium?
What is the planned expenditure line?
The solid line depicts the planned expenditure function, as represented by . The dashed line depicts the line along which real GDP equals aggregate planned expenditure, or more simply Y = PE. The intersection of these two lines is known as Keynesian equilibrium.
What is the 45 line in Keynesian economics?
What causes the aggregate expenditure curve to shift upward?
The lower the price level, the higher the aggregate expenditures curve and the higher the equilibrium level of real GDP. A change in autonomous aggregate expenditures shifts the aggregate expenditures curve for each price level.
What causes an increase in aggregate expenditure?
An increase in financial wealth (including stocks, bonds, and especially money) motivates the household and business sectors to increase consumption and investment expenditures. Like other expenditure increases, this results in an upward shift of the aggregate expenditures line.
How do you calculate the equilibrium level of aggregate expenditure?