1. 30.2 Graphing Aggregate Expenditure
Induced AND Autonomous Expenditure combined
Induced = Consumption – imports
Real GDP = CE and Imports,
C includes purchase of imports, but we only want to look at domestic expenditures so we subtract the value of imported goods
Induced Expenditure is directly related to RGDP
Autonomous = Investment, Government , Exports & AutoConE
These change in relation to Interest rates, expectations, Gov’t policy priorities, and Global
Demand

2. Graphing Aggregate Expenditures 45* reference line = Keynesian Cross
represents equilibrium between AE & RGDP AND where actual investment = planned investment
AE Line = C + I + G + NX
C – is a function of MPC and DI whereas the others are not dependent on income – when C changes is when AE changes
Where Reference line and AE cross=equilibrium & a good estimate of RGDP

3. Graphing Aggregate Expenditures
The lines are from the table below
Notice the constants for the Autonomous Expenditures
The Blue line includes imports
The Red line is AE after value of imports has been subtracted

4. Equilibrium Expenditure
-Point on the AE where aggregate planned expenditure=RGDP
If planned AE is below the equilibrium businesses will have to sell stock/inventory because demand > supply on hand, this leads to greater investment to catch up and replace inventory so RGDP will increase and equilibrium is restored (this occurs when the line is above the reference line)
If planned AE is above the equilibrium businesses have excess stock on hand and begin to slow down production, this leads to lower RGDP and equilibrium is restored.

5. Gov’t Spending in AE
Government Expenditures = part of Autonomous Expenditures, set by policies, but gov’t spending is typically funded by taxes which can affect disposable income higher G in formula should lead to higher AE, but if that spending is from higher taxes- the C would drop due to lower disposable income- so they might cancel each other out If economy is close to capacity- it can be negative due to crowding out affect If economy is in a large recessionary gap- it could pull people out of their financial holes So effects of Gov’t spending vary depending on state of economy when spending takes place and how that spending is funded

6. International Trade in AE
Depends on whether we are looking at imports or exports Imports affect Induced Expend. in an inverse relationship Exports affect Autonomous in a direct relationship

7. Practice Problems p.781