Chapter 31: Aggregate Expenditures Model and Equilibrium Output

Michael R. Montgomery

Aggregate expenditures model and equilibrium output Aggregate expenditures (AE), the total spending in an economy on final goods and services over a designated time period, is the core demand-side concept in modern macroeconomics (a final good is a newly produced good bought by a user who will “finally” dispose of that good by using up its services). Following the lead of John Maynard Keynes in his General Theory of Employment, Interest and Money (1936/1965) and early Keynesians such as Alvin Hansen (1953) and Paul A. Samuelson (1939), AE is typically broken down by major type of purchaser into consumption expenditures, investment expenditures, government expenditures, and the sum of exports less imports (known as net exports ). The study of these categories in recent decades has been aided considerably by the development of the National Income and Product Accounts (NIPA) accounting system, which is used by governments in measuring and reporting ...

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