Question

Can someone please explain aggregate expenditure in the short and long run please? And what would cause the demand and supply curves to shift to the left and right? I need a clear concise explanation because I keep getting confused.

Answer 1

Aggregate expenditure is one of the most usable method to calculate National Income of the economy. It is the sum of all the expenditure undertaken in an economy in a given period of time by the agents of that economy ( Agents- 1. Households, 2. Firms) Thus it is actually measuring the total income of the economy. The components of Aggregate expenditure are-

AE=C+I+G+(X-M)

C = Household consumption on a given period of time

I= investment made by the firms which is actually the firms' spending on capital goods

G= Govt. spending to infrastructure, development for public welfare purpose.

X= amount of export done by the firms within the economy

M= amount of import to fulfil the consumption demand of the households

X-M = Net export/Net import

this four components together determine the overall spending of an economy which is nothing but the Aggregate Expenditure.

In long run, due to inflationary or recessionary effect , change in the amount of all the four components as they are all variables Aggregate Expenditure fluctuates in every period of time.

• Shift in the demand curve means when the whole demand curve shifted to left or right from its original position. Suppose, a consumer's income has increased , keeping other things ceteris peribus, now that consumer can buy more of the good thus he will demand more good. Thus demand curve will shift to the left. and if demand of a consumer on some good decreases demand curve will shift to the right
• Shift in the supply curve means also increase/ decrease in the supply of the good from the firm or producer.suppose the cost of production of one unit of goods falls due to the fall in the price of factor of production. then using the same amount of money firm can produce more good thus the supply of good will rose the supply curve will shift to the right , similarly fall in the supply by producer will lead to have a shift towards the left of the original position of the supply curve.
• 
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