Aggregate Expenditure

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  • The sum of expenditures in a macroeconomy. To calculate the sum of expenditures in a macroeconomy, an accounting identity is used to account for the expenditures of the components of a macroeconomy. These components include household consumption (C); business investment expenditure (I); Government spending (G); and net spending in the global economy—net exports (NX). With the exception of autonomous government spending, the other variables are dependent on disposable income, the interest rate, and the exchange rate.

    The aggregate expenditure model is a Keynesian model that makes the argument that the amount of goods and services produced, and therefore employment, is directly related to total spending in an economy (aggregate expenditure). When aggregate expenditure falls, total output and employment will fall because businesses will be ill disposed ...

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