Expenditure comprises of four very important factors which are:
- Consumption expenditure
- Net exports
- Government expenditure on services and goods
This we get by deducting the imports from the exports of a country.
The above mentioned four factors of expenditure, combined together makes the total expenditure which sums up with the aggregate Gross Domentic Product of the economy.
Aggregate or Total planned expenditure
This expenditure process deals with the following factors:
Total considered levels of expenditure on consumption,
- Expenditure by the government on services and goods, and
- Exports after deducting imports
When there is a change in the income, the first and the last above said points gets altered, which in turn affects the GDP of the economy.
Real GDP and Aggregate Expenditure are a Diadic Process
There is a mutual connection between real GDPnd aggregate expenditure. Always keep in mind that with the rise of real GDP, the total expenditure will also increase. Likewise, with the increase in the amount of aggregate expenditure, the real GDP will also increase (considering other aspects will remain the same).
Consumption and Saving Plans
Quite a lot of factors control the consumption expenditure as well as the saving plans. The essential ones are as follows:
- Disposable earnings
- Real interest rate
- Estimated future income
Disposable income can be defined as the cumulative income after deducting taxes as well as transfer payments. Aggregate income is the same as the real GDP, which in turn proofs that disposable income too falls back on the real GDP. To look at the collaborative link among the real GDP along with the designed consumption expenditure, the focus is given to the association linking consumption expenditure with the disposable income, after the additional three aspects listed previously are invariable in nature.