Text at the top reads,

Aggregate expenditure: The total amount of goods and services people want to buy across the whole economy. This equals C, Consumption plus I, Planned investment plus G, Government purchases plus N X, Net exports.

Aggregate expenditure rises with income (and hence real G D P), since consumption rises with income.

A graph below the text is titled Macroeconomic equilibrium.

The graph plots Real G D P along the horizontal axis against Aggregate expenditure along the vertical axis. A 45-degree line originates from the origin and terminates at the highest point on the graph. Text pointing to this curve reads, The 45-degree line shows all possible points of macroeconomic equilibrium. The slope of the curve, 45 degrees is marked on the graph. A positive curve labeled A E: The aggregate expenditure line shows how aggregate expenditure rises with income, originating at a point on the lower half of the graph intersects the 45-degree line at Macroeconomic equilibrium: Aggregate expenditure equals G D P, with the coordinates (Equilibrium G D P, Aggregate expenditure). Dashed lines from these points meet their respective coordinates on the horizontal and vertical axis.

Text beside the graph reads, The economy can be in macroeconomic equilibrium in both booms and busts.

A graph titled Shifts in Aggregate expenditure plots Real G D P along the horizontal axis against Aggregate expenditure along the vertical axis.

The graph plots a positive curve labeled 45-degree line originating at the origin and terminating at the highest point on the graph. Three other positive curves labeled Increased A E, Old A E line, and Decreased A E are plotted on the graph from top to bottom respectively. The 45-degree line intersects the curve Decreased A E, Old A E and Decreased aggregate expenditure curve at increasing values respectively. A downward arrow labeled, Spending at each level of income, points from Old A E line towards the Decreased A E curve. An upward arrow labeled, Spending at each level of income, points from Old A E line toward Increased A E.

Text besides the graph reads as follows:

Step one: Did spending plans change?

Is there a change In how much consumers spend, businesses Invest, governments purchase, or importers and exporters trade at each level of income?

Step two: Shift aggregate expenditure line

An increase spending shifts the aggregate expenditure Iine up.

A decrease in spending shifts the aggregate expenditure line down

Step Three: Analyze new equilibrium

How does equilibrium level of G D P change in the new equilibrium?

A table titled The Marginal Propensity to Consume (M P C) and the Multiplier reads as follows:

Marginal propensity to consume, The fraction of each extra dollar of income that you spend. M P C equals Delta Consumption over Delta Income less than 1.

Multiplier, A measure of how much G D P increases due to both the direct and ripple effects flowing from an extra dollar of spending. Multiplier equals 1 over 1 minus M P C.

Total change in G D P, The larger the multiplier, the more G D P increases when spending increases. Delta G D P equals Delta Spending times Multiplier.