expenditure

Examples of expenditure in the following topics:

• Defining Aggregate Expenditure: Components and Comparison to GDP

  • Aggregate expenditure is the current value of all the finished goods and services in the economy.
  • The equation for aggregate expenditure is: AE = C + I + G + NX.
  • Government expenditure can include infrastructure or transfers which increase the total expenditure in the economy.
  • The GDP is calculated using the Aggregate Expenditures Model .
  • This graph shows the aggregate expenditure model.

• Aggregate Expenditure at Economic Equilibrium

  • The equation for aggregate expenditure is AE = C+ I + G + NX.
  • On the aggregate expenditure model, equilibrium is the point where the aggregate supply and aggregate expenditure curve intersect.
  • An increase in the expenditure by consumption (C) or investment (I) causes the aggregate expenditure to rise which pushes the economy towards a higher equilibrium .
  • The classical aggregate expenditure model is: AE = C + I .
  • This graph shows the classical aggregate expenditure where C is consumption expenditure and I is aggregate investment.

• Defining GDP

  • The income approach and the expenditure approach highlighted below should yield the same final GDP number .
  • Y = C + I + G + (X − M) is the standard equational (expenditure) representation of GDP.
  • "C" (consumption) is normally the largest GDP component in the economy, consisting of private expenditures (household final consumption expenditure) in the economy.
  • "G" (government spending) is the sum of government expenditures on final goods and services.
  • Since wages eventually are used in consumption (C), the expenditure approach to calculating GDP focuses on the end consumption expenditure to avoid double counting.

• Graphing Equilibrium

  • The AD-AS model is used to graph the aggregate expenditure and the point of equilibrium .
  • Aggregate expenditure is the current value of all the finished goods and services in the economy.
  • The equation for aggregate expenditure is: AE = C + I + G + NX.
  • The AD-AS model is used to graph the aggregate expenditure at the point of equilibrium.
  • The aggregate expenditure and aggregate supply adjust each other towards equilibrium.

• GDP Equation in Depth (C+I+G+X)

  • These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services.
  • Only expenditure based consumption is counted.
  • Government spending (G) is the sum of government expenditures on final goods and services.
  • Note that C, G, and I are expenditures on final goods and services; expenditures on intermediate goods and services do not count.
  • Components of the expenditure approach to calculating GDP as presented in the National Income Accounts (U.S.

• National Income

  • Three strategies have been used to obtain the market values of all the goods and services produced: the product or output method, the expenditure method, and the income method.
  • The expenditure approach focuses on finding the total output of a nation by finding the total amount of money spent and is the most commonly used equational form:
  • GDP = C + I + G + ( X - M ); where C = household consumption expenditures / personal consumption expenditures, I = gross private domestic investment, G = government consumption and gross investment expenditures, X = gross exports of goods and services, and M = gross imports of goods and services.
  • The expenditure approach is a common method for evaluating the value of an economy at a given point in time.

• Arguments For and Against Fighting Recession with Expansionary Fiscal Policy

  • Fiscal policy is a broad term, describing the policies enacted around government revenue and expenditure in order to influence the economy.
  • Governments can increase their revenue by increasing taxes, or increase their expenditure by spending money on programs.
  • Expansionary fiscal policies involve reducing taxes or increasing government expenditure.
  • When taxes equal government expenditures, the government has a balanced budget.
  • Fiscal stimulus is implemented with the view that tax relief through a reduction in tax rate and or direct government spending through investment (infrastructure, repair, construction) will provide stimulus to increase economic growth by directly influencing consumption or the government expenditure component of GDP .

• Calculating GDP

  • GDP can be calculated through the expenditures, income, or output approach.
  • There are a few methods used for calculating GDP, the most commonly presented are the expenditure and the income approach.
  • Both of these methods calculate GDP by evaluating the final stage of sales (expenditure) or income (income).
  • The most well known approach to calculating GDP, the expenditures approach is characterized by the following formula:
  • GDP at producer price theoretically should be equal to GDP calculated based on the expenditure approach.

• The consumption function

  • Autonomous consumption (otherwise known as exogenous consumption) is consumption expenditure that occurs when income levels are zero.
  • Such consumption is considered autonomous of income only when expenditure on these consumables does not vary with changes in income.
  • Induced consumption is consumption expenditure by households on goods and services that varies with income.
  • Such consumption is considered induced by income when expenditure on these consumables varies as income changes.

• The Circular Flow Model

  • The basic circular flow model consists of two sectors that determine income, expenditure, and output.
  • A state of equilibrium is reached when there is no tendency for the levels of income ($Y$), expenditure ($E$), and output ($O$) to change ($Y=E=O$).
  • This equation means that the expenditure of buyers (households) becomes income for sellers (firms).
  • The circular flow of income follows a specific pattern: Production → Income → Expenditure → Production.