1
EXPENSES AND INCOME
1. AGGREGATE EXPENDITURE AND REAL GDP NVESTMENT AND
SAVINGS
To analyze both models we assume;
Wages and prices are assumed to be fixed.
The money market does not exist.
Consumption and savings are positively related to income.
Government investments and expenditures are autonomous.
Taxes are also assumed to be independent of the economic variable, precisely to
simplify the analysis.
Exports are assumed to be autonomous,
There is no economic growth.
There is no government
There are no international relations
According to the Income-Expenditure model, macroeconomic equilibrium is achieved when
planned expenditures (PE) are equal to actual expenditures (AE). However, the actual costs are
not always equal to the planned costs. One of the reasons for this inequality is the change in
firms' inventory.
In the graph, the planned costs (PE) are presented with the C + I curve, while the line with
angle 45o represents the actual costs AE. The equilibrium level is at the point of intersection of
the planned expenditure curve with the line with angle 450. So, here is provided the equilibrium
condition PE = AE, ie the planned expenditures are equal to the actual expenditures, therefore
the inventory does not change
EXPENSES AND INCOME
1. AGGREGATE EXPENDITURE AND REAL GDP NVESTMENT AND
SAVINGS
To analyze both models we assume;
Wages and prices are assumed to be fixed.
The money market does not exist.
Consumption and savings are positively related to income.
Government investments and expenditures are autonomous.
Taxes are also assumed to be independent of the economic variable, precisely to
simplify the analysis.
Exports are assumed to be autonomous,
There is no economic growth.
There is no government
There are no international relations
According to the Income-Expenditure model, macroeconomic equilibrium is achieved when
planned expenditures (PE) are equal to actual expenditures (AE). However, the actual costs are
not always equal to the planned costs. One of the reasons for this inequality is the change in
firms' inventory.
In the graph, the planned costs (PE) are presented with the C + I curve, while the line with
angle 45o represents the actual costs AE. The equilibrium level is at the point of intersection of
the planned expenditure curve with the line with angle 450. So, here is provided the equilibrium
condition PE = AE, ie the planned expenditures are equal to the actual expenditures, therefore
the inventory does not change
