Aggregate Expenditure

In economics, Aggregate Expenditure is a measure of national income. Aggregate Expenditure is defined as the current value of all the finished goods and services in the economy. The aggregate expenditure is thus the sum total of all the expenditures undertaken in the economy by the factors during a given time period. It refers to the expenditure incurred on consumer goods, planned investment (or savings) and in the Keynesian model also includes the expenditure made by the government in the economy. In an open economy scenario, the aggregate expenditure also includes the difference between the exports and the imports.

Aggregate Expenditures is defined as

Here,

• C = Household Consumption
• I_p = Planned Investment
• I_u = Unplanned Investment
• G = Government spending
• Xn = Net exports (Exports-Imports)

Aggregate Expenditure is one of the methods to calculate the sum total of all economic activities in an economy which is referred to as the Gross Domestic product of an economy. The gross domestic product which is an important measure of the growth of the economy is calculated through the Aggregate expenditure model also known as the Keynesian cross.AE is also used in the Aggregate Demand-Aggregate Supply Model which advances the Aggregate Expenditures Model with the inclusion of Price changes.

Components of Aggregate Expenditure (AE) - defined as the total amount that firms and households plan to spend on goods and services at each level of income. Also, it can be seen that the aggregate expenditure is the sum of expenditures on consumption, investment, government expenses and net exports. It is normally derived from all the components of the Aggregate Demand. Aggregate demand (AD) refers to the sum total of goods that are demanded in an economy over a period and thus AD is defined by the planned total expenditure in an economy for a given price level.