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.
13.3 Aggregate Expenditures and Aggregate Demand
- There will be a different aggregate expenditures curve for each price level.
- Aggregate expenditures will vary with the price level because of the wealth effect, the interest rate effect, and the international trade effect. The higher the price level, the lower the aggregate expenditures curve and the lower the equilibrium level of real GDP. The lower the price level, the higher the aggregate expenditures curve and the higher the equilibrium level of real GDP.
- A change in autonomous aggregate expenditures shifts the aggregate expenditures curve for each price level. That shifts the aggregate demand curve by an amount equal to the change in autonomous aggregate expenditures times the multiplier.