Desired Spending and Actual Spending

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Desired Spending and Actual Spending

Desired spending does not mean how much people want to spend. If there is no constraint, they would like to spend an unlimited amount of money or resources. In the context of macroeconomic analysis, desired spending (also called planned spending or intended spending) means what people want to spend out of the resources at their disposal. Thus, amount which people want to spend (intend to or plan to spend) out of their given income on consumption is called desired or intended consumption expenditure. Similarly the amount which producer wants to spend on investment based on their given resources is called desired or intended investment. Thus, the desired or intended spending by the four groups of spenders, viz., desired consumption, desired investment, desired government expenditure and desired exports add up to desired aggregate spending. In the analysis of national income determination we talk of spending in this sense as desired or intended or planned expenditure. Thus, in the equation,

AE = C +I + G + (X - M)

All the spendings on consumption, investment, etc. are desired spendings or desired expenditure.


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