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AGGREGATE EXPENDITURE EQUATION: An equation indicating that aggregate expenditures (AE) are the sum of consumption expenditures (C), investment expenditures (I), government purchases (G), and net exports (X-M), stated as: AE = C + I + G + (X-M). This equation surfaces in the Keynesian economic income-expenditure model in the form of the aggregate expenditures line. However, it's also central throughout the study of macroeconomics, including aggregate demand and the measurement of gross domestic product.
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Lesson 13: Aggregate Demand | Unit 3: The Curve
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Page: 15 of 22
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- The basic setup, shape, and position of the aggregate demand curve on a graph. The AD curve shows the negative relationship between the price level and real GDP.
- What causes the negative slope of the AD curve--namely: 1) the real-balance effect, 2) the interest-rate effect, and 3) the net-export effect.
- Why the real-balance effect means that a higher (or lower) price level reduces (or increases) the purchasing power of money, resulting in less (or more) real production purchased.
- Why the interest-rate effect means that a higher (or lower) price level leads to higher (or lower) interest rates and thus a higher (or lower) cost of borrowing which decreases (or increases) consumption and investment expenditures on real production.
- Why the net-export effect means that a higher (or lower) price level decreases (or increases) exports and increases (or decreases) imports thus decreasing (or increasing) net export expenditures on real production.
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LAW A generally accepted, verified, proven, fundamental scientific relation. A law is a scientifically certified, thoroughly verified, cause-and-effect relation about the workings of the world. It has been tested and retested through the scientific method. The law of demand, law of increasing opportunity cost, and law of diminishing marginal utility are three fundamental (and extremely important) economic laws of nature.
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PURPLE SMARPHIN
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Today, you are likely to spend a great deal of time strolling through a department store trying to buy either a travel case for you toothbrush or a looseleaf notebook binder. Be on the lookout for telephone calls from long-lost relatives.
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Junk bonds are so called because they have a better than 50% chance of default, carrying a Standard & Poor's rating of CC or lower.
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"Inside the ring or out, ain't nothing wrong with going down. It's staying down that's wrong. " -- Muhammad Ali
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ILS
Indirect Least Squares, International Labor Standards
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