Equilibrium Expenditure: Understanding Aggregate Expenditure and Real GDP
What is equilibrium expenditure?
Choose the correct statement:
- The amount of aggregate expenditure at which aggregate planned expenditure exceeds real GDP.
- The amount of aggregate expenditure at which aggregate planned expenditure equals real GDP.
- When unplanned inventory change is zero or negative.
- When unplanned inventory change is positive.
- The amount of aggregate expenditure at which aggregate planned expenditure is less than real GDP
Final answer:
Equilibrium expenditure is the amount of aggregate expenditure at which aggregate planned expenditure equals real GDP. It represents the point where the total amount of spending in the economy matches the actual level of output.
Answer:
Equilibrium expenditure is the amount of aggregate expenditure at which aggregate planned expenditure equals real GDP. It is a crucial concept in macroeconomics that signifies the balance between total spending and actual output in the economy.
Explanation:
Equilibrium expenditure is the amount of aggregate expenditure at which aggregate planned expenditure equals real GDP. It represents the point where the total amount of spending in the economy matches the actual level of output. At equilibrium expenditure, there is no unplanned change in inventories, meaning that the quantity of goods produced is equal to the quantity demanded.
Equilibrium expenditure is an important concept in macroeconomics as it helps determine the overall level of economic activity and the stability of the economy. When aggregate planned expenditure exceeds real GDP, there is a surplus of goods, leading to a decrease in inventories. On the other hand, when aggregate planned expenditure is less than real GDP, there is a shortage of goods, resulting in an increase in inventories.
Understanding equilibrium expenditure is crucial for policymakers and economists as it provides insights into the health of the economy and helps in making informed decisions to promote sustainable growth.