Question : In the aggregate expenditure model, equilibrium occurs when aggregate expenditure is equal to:
Option 1: Consumption expenditure
Option 2: Investment expenditure
Option 3: Government expenditure
Option 4: Net exports
Correct Answer: Consumption expenditure
Solution : The correct answer is (a) consumption expenditure.
The aggregate expenditure model is based on the idea that the total spending in an economy (aggregate expenditure) determines the level of real GDP.
Equilibrium occurs when aggregate expenditure (AE) is equal to real GDP (Y). In the model, consumption expenditure is considered the largest component of aggregate expenditure. Therefore, at equilibrium, aggregate expenditure is equal to consumption expenditure: AE = C.
This is because in equilibrium, total spending in the economy matches the total output of goods and services, implying that consumers are spending all of their disposable income on consumption, without any unintended inventory accumulation or depletion.
Question : The equilibrium in the aggregate market occurs when:
Option 1: Aggregate demand equals aggregate supply
Option 2: Consumption equals investment
Option 3: Government expenditure equals net exports
Option 4: Saving equals investment
Question : In an open economy, aggregate demand is estimated as:
Option 1: Private consumption expenditure
Option 2: Private consumption expenditure + Government expenditure
Option 3: Private investment expenditure + Private consumption expenditure + Government expenditure
Option 4: Private consumption expenditure + Private investment expenditure + Government expenditure + Net exports
Question : Aggregate demand in a two sector model involves-
Option 1: Consumption and investment
Option 2: Investment and net exports
Option 3: Net exports and consumption
Option 4: Consumption and government
Question : Which of the following is not a component of aggregate demand?
Option 4: Savings
Question : Higher the disposable income, higher is ___________ expenditure.
Option 1: Consumption expenditure.
Option 2: Government expenditure.
Option 3: Investment expenditure.
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