Consider the aggregate expenditure model. Suppose there is an increase in real GDP in the economy. Classify each economic variable as to whether it increases, decreases, or remains unchanged when real GDP increases. Increases Decreases Does not change.

a. exports
b. aggregate expenditures
c. consumption
d. government spending
e. investment
f. imports
g. natural rate of output
h. net exports
i. marginal propensity to consume

Given in an expenditure output model also known as keynesian cross diagram, if there is an increase n real GDP in the economy , the classification of each economic variable as to increase, decrease or remains unchanged is classified as follows:

Increase in real GDP means increase in the production in the economy which is adjusted to the inflation. The employment level will increase so does the wage rates.

Increases: aggregate expenditures, consumption, imports

Decreases: net exports

Does not change: govt spending, potential GDP, MPC, exports, investment

This classification is represented as below in the table:

Martebi Martebi · Answer 2 · 2022-04-12T11:27:36+02:00

An increase n real GDP in the economy , will also be classified as follows:

Increases: aggregate expenditures, consumption, imports
Decreases: net exports
Does not change: govt spending, potential GDP, MPC, exports, investment

What happens to GDP when aggregate expenditure is altered?

If there is a case of excess of expenditure over supply, there is said to be also an excess demand that can result to an increase in prices or output (thus leading to higher GDP).

Note that a rise in the aggregate expenditure is one that moves or influences the economy towards a higher state of equilibrium and a higher rate of the GDP.

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