The following points highlight the three main characteristics of expenditure flows. The characteristics are: 1. Real Expenditures 2. Planned Values 3. Aggregate Flows.
Characteristic # 1. Real Expenditures:
The theory of income determination is based on the concept of real/not nominal (monetary) expenditures. We have noted earlier that national income and its various components can be measured either at current, or at constant, prices. Then, even if prices are held constant, a change in the measured (real) flow of consumption or investment will lead to a change in the real output of consumption or investment goods.
Since we are concerned with changes in real outputs, we choose to measure total expenditure at constant prices. However, if the general price level remains constant, the two measures (one at current and the other at constant prices) give us the same result.
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Characteristic # 2. Planned (Desired) Values:
All figures in our model give planned or desired values, not actual (realised) values. While planned expenditure refers to what people intend to spend, actual expenditure refers to what they succeed in spending. Thus in our discussion the focus will always be on what households and firms plan to spend on purchasing consumption and investment goods.
If these consumption and investment plans are not fulfilled actual expenditure will differ from planned expenditure.
For example, a major strike in the bread industry may frustrate consumers’ plan to spend on consumption goods by interrupting production of bread. It may be noted that another name of planned expenditure is ex-ante (or anticipated) expenditure. Likewise actual expenditure is also known as ex-post expenditure.
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Characteristic # 3. Aggregate Flows:
Since, in macroeconomics, we are concerned with the behaviour of the economy in its totality, we are concerned with the aggregate behaviour of all households and all firms. So when we speak of consumption or investment, we mean the aggregate, i.e., the total amount consumers or business firms are planning to spend on consumption goods or investment goods.