Aggregate expenditure (AE), summarized in the final column of Table 2.4, is the sum of consumer expenditure, investment expenditure (new home sales and firm investments in new buildings, equipment, tools, and inventory), government purchases of goods and services, and net exports. This definition implies that a recession triggered by a cutback in consumer or firm expenditure can be offset one-for-one with a boost in government expenditure. This notion is the core of Keynesian economics, and assumes that the last dollar government spent building the “Bridge to Nowhere”1 is as productive as the last dollar spent improving computer processors, motion picture sound and visual effects, or the aerodynamics of passenger ...
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