Figure 1: The Aggregate Spending Model The aggregate spending model, Figure 1, focuses on the short-run relationship between total spending and real gross domestic product (GDP) , assuming that the price level is constant. Aggregate spending is the sum of spending on consumption, investment, government purchases and net exports. The equilibrium level of GDP, E, exists when total output as measured by GDP, Y0, and aggregate spending, AE0, are equal. In Figure 1, an increase in aggregate spending is illustrated by the upward shift of the aggregate spending line, from AE0 to AE1. Companies taking advantage of the low interest rates offered by the RBA and optimistic view of future profits can cause this change. The increase in the aggregate expenditure line will also shift the equilibrium level of GDP from point E to point A and increase output from Y0 to