Final answer:
Average accumulated expenditures are the sum of all spending components in an economy—consumption, investment, government expenditures, and net exports—calculated over a period. It is computed within the aggregate expenditure model and is crucial for building the Keynesian cross diagram, which illustrates the relationship between total spending and national income in macroeconomics.
Step-by-step explanation:
Average accumulated expenditures are a measure within the aggregate expenditure model that represents the total sum of spending in an economy accumulated over a period, typically concerning the gross domestic product (GDP) or national income. Calculating this figure involves summing up the components of aggregate demand—consumption (C), investment (I), government spending (G), exports (X) minus imports (M)—over time to reflect how expenditures change as national income changes.
Building a combined aggregate expenditure function involves creating a table with columns for real GDP or national income, after-tax income, consumption, and the sums for non-variable elements like investment, government spending, and exports. The last column represents the aggregate expenditures, computed as C + I + G + X − M. This process is key in demonstrating the Keynesian cross diagram, which is central to understanding the expenditure-income model in macroeconomics.
For example, if we assume that 30% of real GDP is taxed and the marginal propensity to consume (MPC) is 0.8, an increase in after-tax income of $700 leads to a $560 rise in consumption. This is added to the static values of investment, government spending, and exports, while subtracting imports, which are a function of real GDP, to determine the aggregate expenditures at various levels of national income.