Aggregate Expenditure Model

Aggregate Expenditure Model

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Christian Bien

Learning Objectives

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What is the Aggregate Expenditure Model?
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The aggregate expenditure model is a model that measures the effect of an increase in one or more components of aggregate expenditure on real Gross Domestic Product.

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What does the Aggregate Expenditure Model Look Like?
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Elements of the Aggregate Expenditure Model
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  • Expenditure (Y-Axis) This is used to show the effect of an initial change in one of more components of aggregate expenditure. E meaning the level of expenditure. 

  • Real GDP (X-Axis) This is used to show the multiplier effect and the greater change in RGDP from an initial change in Expenditure. - 45º Line The line shows where real GDP equals expenditure.

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Consumption
Consumption Function
MPC, MPS, APC and APS
Investment
Government Expenditure
Net Exports
Aggregate Expenditure Model
Multiplier Process
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