Asked by: Abdon Stumpfl
asked in category: General Last Updated: 16th April, 2020

What is the relationship between aggregate expenditure and real GDP?

Aggregate Expenditure is basically the total spending in the economy: the sum of consumption, planned investment, government purchases, and net exports. The Aggregate Expenditure Model Focuses on the short-run relationship between total spending and real GDP, assuming that the price level is constant.

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Likewise, people ask, is aggregate expenditure the same as GDP?

Written out in full, the equation reads: aggregate expenditure = household consumption (C) + investments (I) + government spending (G) + net exports (NX). Aggregate expenditure is a method that is used to calculate the total value of economic activities, also referred to as the gross domestic product ( GDP ).

Likewise, how is aggregate demand related to GDP? Aggregate demand represents the total demand for goods and services at any given price level in a given period. GDP represents the total amount of goods and services produced in an economy while aggregate demand is the demand or desire for those goods.

Furthermore, what happens when aggregate expenditure is equal to GDP?

Equilibrium expenditure is the level of aggregate expenditure that occurs when aggregate planned expenditure equals real GDP. If aggregate planned expenditure is less than real GDP, inventories increase above their target levels. Firms decrease their production to reduce their inventories and GDP decreases.

When planned aggregate expenditure is less than real GDP what happens to firms inventories?

When planned aggregate expenditure is less than real GDP, as in the diagram to the right, what happens to firms' inventories? Inventories fall as firms increase output. Inventories accumulate as firms increase production. Inventories fall if production is not scaled back.

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