FThe full aggregate expenditure model adds in the assumptions of governemnt & overseas seactors. Here; Government Expenditure, and Exports are assumed to be autonomous, meaning they are independant of real GDP. Imports however are assumed to increase with the level of disposable income, and, like consumption, are influenced by the ”Marginal Propensity to Import”. e.g. M.P.I of 0.10 means for every 10. 700 On the Full Aggregate Expenditure model;

• The X axis is now “Real GDP” as opposed to ”Real Income” as it was on the Consumption Function Diagram.
• Equilibrium income occurs where Aggregate planned expenditure equals GDP (the brown dotted line)

If Real GDP is below equal, total spending exceeds output. leading to inventories falling If Real GDP is above equal, output exceeds total spending. leading to inventories going up.’

Inventores falling sends a signal to hire additional resources (people) in order to increase output. Output will rise pushing up Real GDP (a measure of output) towrads equilibrium.

Macro-economic Equilibrium §

As depicted below at , equilibrium occurs when;

• Total Planned Spending equals Total Output
• At the point where the line intersects the AE function

Transclude of block

Spending > Output = ⬇Inventories 🠱Income Spending < Output = 🠱Inventories ⬇Income