Question

The economy has been officially out of the worst recession since the Great Depression for 10 years. In August, personal consumption expenditure increased by .1% which is a smaller increase than in the previous months where the personal consumption expenditures increased by .5% per month. How does the change in aggregate expenditures in August affect the aggregate expenditures, GDP, and employment? How does that compare to the changes in consumption in the previous months? Investment spending in August fell by .2%. How does this change in investment spending affect the aggregate expenditures, GDP, and employment? Do you feel the change in consumption, or the change in investment spending is more accurate in predicting how GDP might change in the future? Are you concerned about these changes? Why or why not?

10 sentences

Answer 1

Gross Domestic Product is considered as the sum total of all the goods and services that are produced with the domestic territory of a country during an accounting year. It is the sum total of personal consumption expenditure ( C ) , investment Expenditure ( I) , GOVERNMENT Expenditure ( G) and net Export ( NX). Decrease in any of the components of GDP indicates fall in country's GDP during that year.

In August, personal consumption expenditure increased by .1% which is a smaller increase than in the previous months where the personal consumption expenditures increased by .5% per month. in the month of August when an expenditure increased by 0.1 %, this means that aggregate Expenditure also had increased. This means that more goods and services were demanded by households. This has contributed to gdp. Increase in gdp means there would have been increase in employment level followed by Increase in income level.

When personal consumption expenditure falls, aggregate demand also falls. This this induces producers to produce less of goods and services. As a result GDP will decline. Employment level will fall due to low level of production followed by low level of income.

Low level of investment expenditure means that there is less capital formation in the economy. Increase in investment expenditure indicates that producers are willing to produce more goods and services. Investments indicate the production potential of an economy. Low investment means low contribution to GDP.

HOUSEHOLD consumption expenditure indicates household spending on goods and services. low level of consumption expenditure means that households are willing to save more and consume less . Low level of Expenditure means low further income generation in the economy.

Yes i think, change in consumption spending and change in Investment Expenditure is helpful in predicting gdp. This is explained as follows:

1. Decrease in Investment means decrease in the level of income ( Investment multilplier Effect)

2. Decline in income, means low level of consumption expenditure.

3. Low consumption expenditure means low further income generation.

4. This would induce producers to produce less.

As an economist, I believe that these changes have negative impact on economy. Decrease in Aggregate demand means decrease in gdp, low EMPLOYMENT level, low level of Income in the Economy.