
Aggregate Expenditures model.
The model that determines the equilibrium level of GDP by the intersection of the aggragate expenditures and aggreagate output (and income) curves.

Spending multiplier (SM)
 The ratio of the change in real GDP to an initial change in any component of aggregate expenditures, including consumptions, investment, goverment spending and net exports.
 1 / (1MPC) or
 1 / MPS

Spending multiplier Arithmetic
 Any initial change in spending by the goverment, household or firms creates a chain reaction of further spending, which causes a greater comulative change in aggregate expenditures.
 chg in G X [1 / (1MPC)]
 this formula will tell us how much will be the increase in G after the end of all rounds.

Recessionary Gap
The amount by which the aggregate expenditures curve must be increase to achieve full employment equilibrium.

Tax multiplier
 The change in aggregate expenditures (total spending) resulting from an initial change in taxes.
 TM = 1 SM

Inflationary Gap
The amount by which the aggregate expenditures curve must be decreased to achive fullemployment equilibrium.

