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Aggregate expenditure

Aggregate expenditure Definition

Aggregate expenditure is a measure of national income, very similar to GDP. It is defined as the total value of annual goods and services production within a country (at market prices) counting only goods and services actually bought.

The Aggregate expenditure, like GDP, includes exports at currency exchange rates (logically, since exports must have been paid for). This is called Net Export Expenditure (export minus import expenditure).

If a country's economy produces more goods than are sold, the increase in inventory would generally be included in the GDP figure, but excluded from Aggregate expenditure, which measures only those goods and services produced and actually purchased.

If an economy is in macroequilibrium aggregate output (measured by GDP) and aggregate expenditure will be equal. (Mainstream microeconomic theories imply that GDP and Aggregate expenditure will be close in real economies because inventory surpluses aren't sustainable at fixed prices. See also: Say's law.) In fact, if the inventory level in the supply sector is static, the GDP and Aggregate expenditure numbers should, theoretically, be identical. (In practise, different measuring methods would create small discrepancies.)

Aggregate expenditure is focused on the demand side of the economy, and is more commonly used by modern macroeconomic theorists than GDP.




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