Question

How do I write out the new planned expenditure function after the change in planned investment

Answer 1

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I have answered this question in Macro Economics Consideration

Abstract

After planning the certain level of investment plan due to some reason it can not be followed and there are so many reason like sudden rise in government expenditure. A planned expenditure is what you think is needed to achieve a particular objective, and the actual expenditure is the reality of what it really costs.Also some expenses like Change in education, health policy, New Defense policy etc that can not be controled. So there is need to have a systematic plan of expenditure and it can be described in following ways :

Planned expenditure is the sum total of all the expenditures undertaken in the economy by the factors during a given time period. It is the expenditure incurred on consumer goods, planned investment and the expenditure made by the government in the economy. In an open economy scenario, aggregate expenditure also includes the difference between the exports and the imports.

The expenditure method is a system for calculating gross domestic product (GDP) that combines consumption, investment, government spending, and net exports. It is the most common way to estimate GDP. It says everything that the private sector, including consumers and private firms, and government spend within the borders of a particular country, must add up to the total value of all finished goods and services produced over a certain period of time. This method produces nominal GDP, which must then be adjusted for inflation to result in the real GDP.

The expenditure method is the most widely used approach for estimating GDP, which is a measure of the economy's output produced within a country's borders irrespective of who owns the means to production. The GDP under this method is calculated by summing up all of the expenditures made on final goods and services.

There are four main aggregate expenditures that go into calculating GDP: consumption by households, investment by businesses, government spending on goods and services, and net exports, which are equal to exports minus imports of goods and services.

The method to calculate expenditure

GDP=C+I+G+(X−M)

Where

C=Consumer spending on goods and services

I=Investor spending on business capital goods

G= Government Spending on public goods and services

X = Export

I = Import

In the United States, the most dominant component in the calculations of GDP under the expenditure method is consumer spending, which accounts for the majority of U.S. GDP. Consumption is typically broken down into purchases of durable goods (such as cars and computers), nondurable goods (such as clothing and food), and services.

Business investment is one of the most volatile components that goes into calculating GDP. It includes capital expenditures by firms on assets with useful lives of more than one year each, such as real estate, equipment, production facilities, and plants.

The last component included in the expenditure approach is net exports, which represents the effect of foreign trade of goods and service on the economy.

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