IndietroAE Model: Graphing Macroeconomic Equilibrium definitions
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1/13IndietroSkip to main contentIndietroAggregate Expenditures
Total spending in an economy, including consumption, investment, government purchases, and net exports, used to determine equilibrium with production. Macroeconomic Equilibrium
A state where total spending matches total production, visually found where the aggregate expenditures line meets the 45-degree line. Consumption Function
A line showing how spending by households consists of a base amount plus a portion that rises with disposable income. Marginal Propensity to Consume
The fraction of each additional dollar of income that is spent, represented as the slope of the consumption line. Disposable Income
Income available to households after taxes, which determines how much is spent or saved. Investment
Constant spending by firms on capital goods, which shifts the aggregate expenditures line upward without changing its slope. Government Purchases
Constant public sector spending on goods and services, raising the aggregate expenditures line's intercept. Net Exports
The value of exports minus imports, treated as a constant that shifts the aggregate expenditures line upward. 45-Degree Line
A reference line on the graph where every point shows spending exactly equals production, indicating equilibrium. GDP
The total value of goods and services produced, represented on the horizontal axis and equated with production. Y-Intercept
The point where a line crosses the vertical axis, indicating the base level of spending before income effects. Slope
The rate at which spending increases as income rises, determined by the marginal propensity to consume in this model. Parallel Lines
Lines with identical slopes, showing that adding investment, government purchases, or net exports shifts but does not tilt the spending line.
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