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AE Model: Components definitions
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Aggregate Expenditure
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Aggregate Expenditure
Total planned spending in an economy, including consumption, investment, government purchases, and net exports.
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Aggregate Expenditure
Total planned spending in an economy, including consumption, investment, government purchases, and net exports.
Consumption
Household spending on goods and services, influenced by factors like income, wealth, and interest rates.
Disposable Income
Money available to households after taxes, directly affecting their ability to spend or save.
Wealth
Value of owned assets such as property and investments, supporting higher spending levels.
Price Level
Average of current prices across the economy, impacting purchasing power and spending decisions.
Interest Rate
Cost of borrowing or reward for saving, shaping both consumer spending and business investment.
Consumption Function
Relationship showing how household spending changes as disposable income changes.
Marginal Propensity to Consume
Portion of each additional dollar of income that is spent rather than saved.
Investment
Business spending on capital goods like equipment and buildings, driven by profit expectations and costs.
Future Profits
Anticipated earnings that motivate firms to increase or decrease capital spending.
Cash Flow
Funds generated from business operations, enabling further investment in productive assets.
Net Exports
Difference between a country's exports and imports, influenced by exchange rates and economic growth.
Exchange Rate
Value of one currency relative to another, affecting the affordability of foreign and domestic goods.
GDP Growth
Increase in a nation's output, affecting income levels and demand for both domestic and foreign products.