Instructions Read Chapter 31: The Aggregate Expenditure Model and review the web
ID: 1140346 • Letter: I
Question
Instructions Read Chapter 31: The Aggregate Expenditure Model and review the website: The National Bureau of Economic Research (VBER/ Bureau of Economic Analyses (BEA 1.1. Eind the last year GDP data (in billions) and the personal consumption expenditures data billions) for the US economy Go to the website for the Bureau of Economic Analyses (BEA), https://www.bea.gou Section 1: Domestic Product and Income. 1.2. In the table below is data for a hypothetical private-closed economy 1.2. Ja the table below is data for a bypotbetical private-closedeconomy Table 1 A Private Closed Economy Real domesticConsumption Saving Investment Aggregato outout (GDP-DID (billions) (hillions) (billions)Expenditures $244 260 276 292 308 324 340 356 372 $260 276 292 308 324 340 356 372 388 S -4 $240 260 280 300 320 340 360 380 400 S16 16 16 16 16 16 16 16 16 4 12 16 20 24 28 resice minessee ne Recal, private means that there is no government and closed means that there tis no foreign tradeExplanation / Answer
We know by principle that GDP= Consumption+Investment+Government Expenses+Export-Import
Hypothetically in a private economy we may consider that Government expenditure=0 and the net result is as under:
Real domestic output= Consumption + Savings
Aggregate Expenditure= Consumption+ Investment
Economic equilibrium is a state where economic forces like supply and demand are balanced and in the absence of external influences the values of economic variables will not change.
Here Aggregate Expenditure is an economic variable which changes with change in Consumption and Investment. Here Aggregate Expenditure keeps changing due to change in consumption pattern and increasing trend which is not entirely driven by external influences. Many internal variables i.e. government policy, domestic inflation, employment rate, gross capital formation change the consumption pattern resulting in Aggregate Expenditure doesn't correctly depict the market equilibrium state.