Aggregate Expenditure Graph

Aggregate Expenditure Graph

Y = AE Graph

• The 45 degree line is not a real line. It is just a hypothetical line that shows us all the points where real output (Y) = planned aggregate expenditure (AE).
• The aggregate expenditure is a real line. It shows us how much we are planning to spend this year at different income levels.
• The point where the AE line intersects with the 45 degree line is our equilibrium output/income/real GDP (Y).

AD/AS Graph

• When AE

  increases

  ---

  it will shift the AD (aggregate demand) to the

  right

  ---

  . This is because if we are planning to spend more that means we are demanding more.
• The change in the equilibrium output on the AE graph is the same as the horizontal shift in the AD line.