How do aggregate expenditures affect income or real GDP?
Saying that aggregate expenditures exceed real GDP is the same as saying that planned expenditures exceed current output. If people are planning to buy more output than is currently being produced, the goods must come from somewhere. Producers replace their stock from inventories, and inventories fall. Since producers like to see a certain level of inventory, when inventories fall, producers increase production, increasing real GDP. If aggregate expenditures are less than real GDP, it means that people are planning to buy fewer goods and services than are currently being produced. Since not all goods and services will be sold, inventories will pile up. When producers see inventories building up, they decrease production, and real GDP falls. • What are the leakages from and injections to spending? Another way to determine macroeconomic equilibrium is to find where leakages from spending equal injections into spending. If injections are greater than leakages, aggregate expenditures are g
