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8 May, 2015 - 11:46

Aggregate expenditure AE is the sum of what households plan to buy (or consumption C), and what businesses plan to buy in terms of capital (or investment I): AE=C+I Later, the model will also include government purchases (G).

Purchases from all sources should be included in aggregate expenditure: both foreign and domestic, public and private. For instance, what foreign consumers could buy from American computer manufacturers next year, would be an important element. However, government and foreign purchases are affected by other than purely domestic economic conditions.