Business and Management
Submitted By Dannyquick
Review Questions According to R. Glenn Hubbard and Anthony Patrick O’Brien, the aggregate expenditure model focuses on the relationship between total spending and real GDP in the short run, assuming that the price level is constant. The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by the level of aggregate expenditure. Aggregate expenditures are the total expenditures on gross domestic product. These expenditures are used by the household, business, government, and foreign sectors to purchase the entire gross domestic product supplied by the domestic economy. The four categories of aggregate expenditures are: consumption expenditures (household sector), investment expenditures (business sector), government purchases (government sector), and net exports (foreign sector). Consumption expenditures are the expenditures by the household on final goods and services taken on in a given time period. The categories of consumption expenditures include nondurable goods, durable goods, and services. Nondurable goods include food, clothing, and facial tissue. Durable goods include cars, furniture, and kitchen appliances. Services include health care, entertainment, education, legal advice, and other intangible activities that do not involve a physical product (Aggregate, 2014). According to R. Glenn Hubbard and Anthony Patrick O’Brien, the aggregate demand curve shows the relationship between the price level and the level of planned aggregate expenditures by households, firms, and the government. The short-run aggregate supply curve shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms. The long-run aggregate supply curve shows the relationship in the long run between the price level and the quantity of real GDP supplied. Stagflation is sluggish…...