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Macro Economics
Notes Figure 6.8
The aggregate expenditure function is actionally putting the pieces together. The only two kinds
of output produced in our hypothetical economy are consumption goods and capital (investment)
goods. Thus, total desired spending in this two-sector economy must be the sum total of desired
consumption expenditure and desired investment expenditure. Thus, E = C + I, where E is total
desired spending.
In fact, the aggregate expenditure (C + I) function is the vertical summation of the individual
expenditure function - the consumption function (C) and the investment function (I) (Figure 6.9).
Figure 6.9
Shifts in the Aggregate Expenditure (C + I) Function
As we know, aggregate expenditure function is the sum of consumption and investment function.
Therefore, anything that shifts either of the functions will shift the aggregate expenditure function.
Shifts of C and I are discussed one by one.
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