Question

1. Prepare an analysis (essay) of three minimum paragraphs (introduction, body and conclusion), letter Arial 12, double space, where explain the Model of Aggregate Expenditures within an Open Economy, adding international trade and the Model of Aggregate Expenditures within an Open Economy, adding to the government.

Answer 1

Answer -

Introduction -

Definitions

Open economy - An open economy is an economy that engages in trade with other countries.

Aggregate Expenditures - Aggregate expenditure (AE) is the measure of the national income. Aggregate Expenditure is basically the total spending in the economy: the sum of consumption, planned investment, government purchases, and net exports. The Aggregate Expenditure Model Focuses on the short-run relationship between total spending and real GDP, assuming that the price level is constant.

Body -

Aggregate expenditures in an economy are composed of an amalgamation of aggregate consumption, investment, government expenditures, and net exports i.e. exports subtracted by imports. However, the question is contingent on what model one chooses to analyze fiscal policy (government expenditures and consumption) or monetary policy (changes in investments and savings) through. Because you mentioned “aggregate expenditure model”, and “multipliers” I’m assuming that voyeuring Keynesian/Neo-Keynesian models with pertinence to price and output–the “aggregate expenditure model” is a function which denotes the various prices firms and households are willing to pay for goods and multipliers including propensity to import and propensity to save, which are all inputs neglected in classical models whom only derive their AE via consumption and investment.

            The AE function is a reflection of national income, and according to Keynesian economists, prices remain sticky. Thus, there is a consistent out-of-equilibrium economy that is so because of informational deficiency and otherwise general deficiency. For example, grocery store clerks cannot deduce or do not successfully understand or bargain for wages that continuously adapt the purchasing power of their wages, or grocery store owners don’t continuously adapt the prices of their goods towards exchange rates of food bought overseas or arbitrage out international goods on the basis of maintaining the real economic rent with inflation etc.

Conclusion -

Therefore, the government is inducted into the fray. Economists and policy legislators may come up with either expansionary or contractionary policies that influence the levels of realized consumption, investments, and exports/imports: aggregate expenditures. Large monopsonists like the US may also innact in unilateral trade decisions and ignore the WTO, therefore, although excluded from influenceable fiscal policy, trade balances and national debt becomes to a degree autonomous and manually agreeable to an AE function. Keynesian economists are often labeled “demand-side”. Therefore, with respect to the two textbook multipliers Marginal Propensity to Consume (MPC) and the Marginal Propensity to Import (MPIM), the government may enact policy, income-tiered tax systems, injections, and social welfare programs, all of which meta-test multipliers, to incur supposed equilibrium state between aggregate demand and aggregate supply.