The aggregate expenditure model focuses on the short-run relationship between ________ and ________.
A)real spending; real GDP
B)unemployment; inflation
C)nominal spending; nominal GDP
D)planned inventories; unplanned inventories

Question

Quizplus · Accepted Answer

The aggregate expenditure model focuses on the short-run relationship between real spending (planned consumption, investment, government purchases, and net exports) and real GDP, as it seeks to explain the factors that determine the level of aggregate demand and output in the economy. Therefore, choice A) is the correct answer. Option B) refers to the Phillips curve, which describes the trade-off between unemployment and inflation, while option C) considers nominal variables (not adjusted for inflation) and neglects price changes, rendering it incomplete. Choice D) relates more to the inventory cycle, which is an important component of short-run fluctuations but only indirectly influences spending and output levels.

The Aggregate Expenditure Model Focuses on the Short-Run Relationship Between