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AGGREGATE EXPENDITURES LINE: A line representing the relation between aggregate expenditures and gross domestic product used in the Keynesian cross. The aggregate expenditure line is obtained by adding investment expenditures, government purchases, and net exports to the consumption line. As such, the slope of the aggregate expenditure line is largely based on the slope of the consumption line (which is the marginal propensity to consume), with adjustments coming from the marginal propensity to invest, the marginal propensity for government purchases, and the marginal propensity to import. The intersection of the aggregate expenditures line and the 45-degree line identifies the equilibrium level of output in the Keynesian cross.

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Lesson 7: Market Equilibrium | Unit 5: The Method Page: 19 of 22

Topic: Too Little Production <=PAGE BACK | PAGE NEXT=>

This market has a 50-cent price and a 400-tape quantity in equilibrium.
  • Note the demand price and the supply price if the quantity is 300 tapes.
  • The demand price is 60 cents. This is the value of the good produced.
  • The supply price is 40 cents. This is the value of goods not produced.
  • Producing this quantity is the same as giving up 40 cents and getting 60 cents in return.
  • 300 tapes is not an efficient use of resources

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AGGREGATE EXPENDITURES LINE

A graphical depiction of the relation between aggregate expenditures by the four macroeconomic sectors (household, business, government, and foreign) and the level of aggregate income or production. In Keynesian economics, the aggregate expenditures line is the essential component of the Keynesian cross analysis used to identify equilibrium income and production. Like any straight line, the aggregate expenditures line is characterized by vertical intercept, which indicates autonomous expenditures, and slope, which indicates induced expenditures. The aggregate expenditures line used in Keynesian economics is derived by adding or stacking investment, government purchases, and net exports to the consumption line.

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Today, you are likely to spend a great deal of time calling an endless list of 800 numbers wanting to buy either a large, stuffed kitty cat or a cross-cut paper shredder. Be on the lookout for strangers with large satchels of used undergarments.
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In the Middle Ages, pepper was used for bartering, and it was often more valuable and stable in value than gold.
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