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Please fully answer the question in detail: Your textbook uses AD in both the Keynesian model...

Please fully answer the question in detail: Your textbook uses AD in both the Keynesian model and in the AS/AD model. In most other textbooks the authors use AE instead of AD in the Keynesian model. Explain why both AD and AE are equal to C + I + G + NX. Since both are equal to C + I + G + NX, in what ways are they different? Use graphs to illustrate.

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Answer #1

The difference between AE and AD is that AE assumes price to be constant and only be determined by C,I,G,and NX.AD is also determined by C,I,G,and NX but it is not independent of changes in price level.As price level changes the AD changes.

AE explains the short run relationship between total spending and real GDP.When total spending rises,Real GDP rises.AD shows the relationship between price level and the levels of planned aggregate expenditure in the economy.

A D AD2 AD Pt us 9乌 1 니2- Ys v 4.

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