Return to the road map.
macro in a nutshell
Aggregate expenditure
Aggregate demandAggregate expenditure is the sum of all planned (or voluntary) spending on domestically produced goods and services. Actual expenditure in the economy may differ from aggregate expenditure, because the former also includes unplanned (or involuntary) investment spending.
The spending categories making up aggregate expenditure are
investment I,
government spending G,
net exports NX (the difference between exports and imports), and
consumption C.
Suppose investment is independent of income at 400. Then investment is always the same, no matter how high income is. In a graph measuring income along the horizontal axis and investment along the vertical axis this income-independent investment level is represented by a horizontal line. Supposing that government spending at 500 and net exports at 300 are independent of income too, these spending categories may be stacked. Their sum is also a horizontal line. Finally, suppose people consume a constant fraction of their income, say 80%. Then consumption is zero if income is zero, and it is 800 if income is 1000. Generally, the consumption line has a positive slope smaller than 1. Stacking consumption on top of the three income-independent (or autonomous) spending categories gives the aggregate demand line shown in the graph.

Further reading on pp. 38-42.

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