[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

the final increase in equilibrium output will be smaller. In panel B of Figure 30.2, the
aggregate expenditures schedule shifts up by the same amount as it did in panel A,
but the aggregate expenditures schedule is flatter and, as a result, equilibrium output
rises by less.
MATHEMATICAL FORMULATION
We can describe the equilibrium by using simple algebra. The aggregate expenditures
equation can be written
AE = A + bY,
where A is the vertical intercept of the aggregate expenditures schedule (the value
of AE when Y = 0), and b is the slope of the aggregate expenditures schedule (an
increase in Y of $1 increases AE by $b). The fact that the slope is positive but less than
45 degrees implies that b is between 0 and 1. Equilibrium requires that aggregate
expenditures equal income, which, under our simplifying assumptions, equals Y:
AE = Y.
A
Aggregate
expenditures
= output
B
Aggregate
expenditures
= output
AGGREGATE EXPENDITURES (AE )
New aggregate
expenditures
schedule (AE 1 )
Original
aggregate
expenditures
schedule
(AE 0 )
AGGREGATE EXPENDITURES (AE )
S
New aggregate
expenditures
schedule (AE 1 )
Original
aggregate
expenditures
schedule
(AE 0 )
S
45°
45°
Y 0
Y 1
Y 0
Y 1
INCOME = OUTPUT (Y ) INCOME = OUTPUT (Y )
Figure 30.2
EFFECT OF A SHIFT IN THE
AGGREGATE EXPENDITURES
SCHEDULE
An upward shift in the aggregate expenditures schedule results in an increase in
the equilibrium level of output. The magnitude of this increase in equilibrium output
is greater than the magnitude of the upward shift; that is, Y 1 – Y 0 exceeds S, the
magnitude of the shift.
The flatter the aggregate expenditures schedule, the smaller the magnitude of the
increase in output resulting from a given upward shift in the schedule.
INCOME–EXPENDITURE ANALYSIS ∂ 665