The most basic premise of the aggregate expenditures model is that:
A) The total output produced in the economy depends directly on the level of total spending
B) The level of employment in the economy depends inversely on the real wage rate
C) The total output produced depends mostly on the total capacity of firms to produce
D) The unemployment level in the economy is inversely related to the inflation rate

Question

Quizplus · Accepted Answer

The aggregate expenditures model proposes that the total output (real GDP) produced in the economy is directly related to the level of total spending, which includes consumption, investment, government spending, and net exports. This relationship is represented by the aggregate expenditures line, which shows the level of total spending at each level of real GDP. As total spending rises, so does real GDP, and vice versa. Therefore, the most basic premise of the model is that there is a positive relationship between spending and output.

The Most Basic Premise of the Aggregate Expenditures Model Is