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The aggregate expenditure model relates aggregate expenditures, which is the sum of planned level of consumption + investment + government purchases + net exports at a given price level, to the level of GDP. The key word here is planned.

GDP is the same as aggregate expenditures(AE) except for one difference.

People, firms and governments don't always spend what they had planned.

So AE differs from GDP in that it deals exclusively with amounts firms intend to invest, and not necessarily taking into account amounts that will actually be invested as in GDP

Where GDP is defined as C + I + G + NX and I = Ip + Iu

(planned + unplanned investment), Aggregate Expenditures is defined as

C + Ip + G + NX.

AE (Aggregate Expenditure) is used in conjunction with GDP in the Aggregate Expenditures Model to predict future GDP direction. In this model, when AE = GDP then the economy is in equilibrium. According to this model an economy will move towards its equilibrium causing changes in the GDP.

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