Asked Nov 22, 2019

Why do the aggregate expenditure function and the aggregate demand curve both shift upward at the same time?


Expert Answer

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Step 1

The term aggregate expenditure means the total expenditure incurred by each factor during a particular period of time. It shows the relationship between the total spending and real output produced while keeping the price level constant. It can be written in the form of equation as:

AE = C + I + G + NX

Where, AE is the aggregate expenditure, C is consumption, I is investment, G is government spending and NX means net exports.

Step 2

The aggregate demand refers to the sum of demands of each individual and firm in the economy. It shows the relationship between the price level and the output produced. It can be written as:

 AD(Y) = C(Y-T) + I(r) + G + NX(e)

Where, ...

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