EconMacro4 Chapter 9 Aggregate Expenditures and Demand
7. A. What are the components of aggregate expenditure? Page 148
Add to the consumption function, investment, government purchases and net exports
(C + I + G + (X-M).
B. In the model developed in this chapter, which components vary with changes in the level of real GDP?
We do not have your book.
In the model developed in this chapter, the components of aggregate expenditure that vary with changes in the level of real GDP are investment (I), government purchases (G), and net exports (X-M).
The consumption function (C) represents the level of spending by households on goods and services and is assumed to be relatively stable in the short-run. It is not directly affected by changes in the level of real GDP.
Investment (I) represents spending by businesses on capital goods, such as machinery, equipment, and buildings. It is highly sensitive to changes in the level of real GDP, as businesses tend to increase or decrease their investment expenditures in response to changes in overall economic conditions and expectations.
Government purchases (G) refer to the spending by the government on goods and services, such as infrastructure projects and public services. It is also sensitive to changes in the level of real GDP, as governments typically adjust their spending levels to stimulate or stabilize the economy.
Net exports (X-M) represent the difference between exports (X) and imports (M). It reflects the spending on domestically produced goods by foreign countries (exports) and the spending on foreign-produced goods by domestic consumers (imports). Net exports are affected by changes in the level of real GDP, as they depend on factors such as the exchange rate, income levels abroad, and foreign demand for domestic products.
Therefore, in the model of aggregate expenditure, changes in real GDP are primarily driven by changes in investment, government purchases, and net exports. By manipulating these components, policymakers and analysts can influence the level of aggregate demand and ultimately impact the overall economy.