StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Aggregate Spending of the Country - Essay Example

Cite this document
Summary
The paper "Aggregate Spending of the Country" discusses that savings refer to the amount that households are willing to give to the firms as well as the amount that firms are willing to get firm the households. At equilibrium, this amount is always the same…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER93.1% of users find it useful
Aggregate Spending of the Country
Read Text Preview

Extract of sample "Aggregate Spending of the Country"

Aggregate spending refers to the value of all finished goods and services in the economy, that is, all the expenses incurred on the consumer goods, planned and unplanned savings and investments, expenses made by the government, and the difference between exports and imports. Arithmetically, it can be denoted as AE=C+ Ip+lu+ G+Xn where Ae=Aggregate expenditure; C = Household Consumption; Ip = Planned Investment; Iu = Unplanned Investment; G = Government spending and Xn = Net exports (Exports-Imports)
According to Keynesian theory (Arnon, Weinblatt, & Young, 2011), earnings increases only when spending increases in the economy. He believed that one person's spending would always be the other person's earnings, thereby supporting his or her earnings. This cycle would keep on repeating itself thereby supporting a normal functioning economy. An economy normally attains equilibrium when the joint expenditure equals the joint production, but Keynes believed that the economy does not stay in this state. He argued that the total spending and production tend to adjust themselves toward equilibrium. When there is excess supply than expenditure and demand, the prices and output go down thereby reducing the gross domestic product of the economy, but when there is an excess of expenditure than supply, demand goes up thereby making prices and output go up. It is clear that the economy keeps on shifting between excess supply and demand which enables it to keep on moving towards equilibrium.
Keynesian equilibrium is only a balance between total expenditure and production and not necessarily other aggregate markets. This makes full employment not be fully achieved. The major components of spending, in this case, are consumption, net exports, government purchases and investment. A change in all or any of them would affect the aggregate demand.
Actual gross domestic product refers to the sum of all the activities of the economy while potential gross domestic product on the other hand refers to the sum of all possible maximum economic activities which can be achieved through the maximum deployment of the factors of production, which include expertise, normal resources, labor and capital. This difference between the potential and real gross domestic product is important in the sense that monetary policymakers use it to decide whether the economy needs more or less monetary stimulus with regard to the gap amid them (Arnon et al, 2011).
Multipliers refer to the measure of the extent to which businesses and households are interrelated in an economy. They normally measure the impact caused by the introduction of an external change such as new investment or export expansion in an economy. Multipliers are therefore essential since they can be used to measure the influence of a proposed or recent adjustment in the economy; they can also be used to make projections given the variations in a specific segment (Eatwell, & Milgate, 2011).
The market price is always set through an interaction of supply and demand curves at a point denoted as equilibrium. This equilibrium price can change from one point to another given the spending changes. An outward shift in spending always leads to a short-term rise in price due to the fall in available stock in the market. This higher price then motivates suppliers to raise their output leading to a movement up the short-term supply curve towards the new equilibrium point. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“N/a Essay Example | Topics and Well Written Essays - 500 words - 6”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1605311-na
(N/a Essay Example | Topics and Well Written Essays - 500 Words - 6)
https://studentshare.org/macro-microeconomics/1605311-na.
“N/a Essay Example | Topics and Well Written Essays - 500 Words - 6”, n.d. https://studentshare.org/macro-microeconomics/1605311-na.
  • Cited: 0 times

CHECK THESE SAMPLES OF Aggregate Spending of the Country

Experimental work on the mechanical properties of concrete using recycled aggregates

When we use recycled aggregate for construction then we are able to construct the environment while at the same time minimize the cost used in the construction process.... The research paper “title” highlights an experimental work on the mechanical properties of concrete using recycled aggregates....
13 Pages (3250 words) Dissertation

LR growth, Economic Fluctuations, US Stabilization Policy

In order to increase economic growth in the country and increase the level of employment in the economy the government should implement expansionary measures thus the government should increases its expenditure and also reduce taxes.... This term paper discusses the issues of the theory of economic development, economic fluctuations and new Keynesian models view, that shows business cycles as reflection of a possibility of the economy being in equilibrium in the short run above or below the full employment level....
6 Pages (1500 words) Term Paper

Higher Government Spending Must Be Good for Growth

The higher the Government Spending, the more availability of public goods in the country, proving to be beneficial for the citizens of the country.... That's why this issue regarding government spending is important, if it's not done properly, the country might face a serious financial crisis.... Many of the high-income countries exist due to the presence of infrastructure in the country and this is mainly due to the investment that takes place (Wahab 135) Potential Benefits Governments make use of numerous grants and subsidies to support employment in the country, either by subsidizing private companies or by providing employment guarantees to the workers....
6 Pages (1500 words) Essay

Keynesian Economic and Monetarist Economic Policy

The neoclassical economic theory could not explain the factors that led to the economic collapse of the country and was also unable to make some appropriate public policy that would help to solve the economic crisis.... When the country is in recession, the government is responsible for increasing public spending so that it raises the aggregate demand in the economy.... Lack of money spending stopped the process of circular flow of money and it resulted in the stagnation in the economy....
7 Pages (1750 words) Research Paper

The Manufacture of Concrete

The urge of humankind to find a strong shelter that can save people from natural disasters like storms and snow or rain, has made concrete attractive for many generations until now.... The development of blended mixture for use in buildings dates back to almost 3000 years.... ... ... ... Syrians used concrete even before Egyptians did....
15 Pages (3750 words) Case Study

Using Microeconomic Policies to Benefit a Country

This case study "Using Microeconomic Policies to Benefit a country" seeks to analyze and discuss how a country can make use of microeconomics concepts to benefit in connection with macroeconomic policies.... Macroeconomic would more interested on the stability of prices in the aggregate level as measured in terms in inflation and the level of employment that must be maintained to keep the economy functioning under sustainable national income or output as measured by gross domestic product (GDP) (McConnell and Brue, pg....
9 Pages (2250 words) Case Study

Types of Government Spending

The higher the Government Spending, the more availability of public goods in the country, proving to be beneficial for the citizens of the country.... Government spending is undertaken with the intention that it will boost the country's economic growth.... Government spending is undertaken with the intention that it will boost the country's economic growth.... That's why this issue regarding government spending is important, if it's not done properly, the country might face a serious financial crisis....
6 Pages (1500 words)

How Tax Cut Increases the Level of Aggregate Demand in the Short Run

ecent increases in income tax allowance by the UK government have resulted in various economic reactions in the entire sectors in the country.... n the short run, a tax cut will enable consumers to save (1-MPC) of the cut in tax; the initial increase in spending will be smaller for change in tax than for an equal change in government expenditure.... The paper "How Tax Cut Increases the Level of aggregate Demand in the Short Run" is a wonderful example of an assignment on macro and microeconomics....
8 Pages (2000 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us