## Consumption and the Aggregate Expenditures Model

Read this chapter to examine consumption and its determinants within the aggregate expenditures model. Consumption is the largest component of Aggregate Demand the United States, therefore, the factors that determine consumption, also determine the success of the economy.

### 13.2 The Aggregate Expenditures Model

#### KEY TAKEAWAYS

- The aggregate expenditures model relates aggregate expenditures to real GDP. Equilibrium in the model occurs where aggregate expenditures equal real GDP and is found graphically at the intersection of the aggregate expenditures curve and the 45-degree line.
- Economists distinguish between autonomous and induced aggregate expenditures. The former do not vary with GDP; the latter do.
- Equilibrium in the aggregate expenditures model implies that unintended investment equals zero.
- A change in autonomous aggregate expenditures leads to a change in equilibrium real GDP, which is a multiple of the change in autonomous aggregate expenditures.
- The size of the multiplier depends on the slope of the aggregate expenditures curve. In general, the steeper the aggregate expenditures curve, the greater the multiplier. The flatter the aggregate expenditures curve, the smaller the multiplier.
- Income taxes tend to flatten the aggregate expenditures curve.