Ch 23 - Wealth Increase shift C up and S Down Marginal...

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CH 23 Aggregate expenditure(Y) = Consumption (C) + Investement (I) + govt expenditures (G) + Net Exports (X) – Net Imports (M) Or Y= C + I + G + X – M Disposable income(YD)- Real GDP or aggregate income(Y) – net taxes(NT) Or YD= Y – NT Disposable income can also be spent or saved so YD= consumption (C) + Savings (S) Consumption function- relationship between consumption and disposable income Saving function - relationship between savings and disposable income Marginal propensity to consume (MPC)- fraction of a change in disposable income that is consumed MPC= ΔCΔYD Marginal propensity to Save (MPS) - the fraction of a change in disposable income that is saved MPS= ΔSΔYD They are both the slopes of their respective graphs MPC + MPC = 1 always Other influences on consumption and saving 1. Expected future disposable income Increase shift C up and S Down 2. The real interest rate Increase shift C Down and S UP 3.
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Unformatted text preview: Wealth Increase shift C up and S Down Marginal propensity to import- fraction of an increase in real GDP that is spent on imports Equilibrium expenditure at a fixed price level Fixed prices have 2 immediate implications for the economy 1. Because each firms price is fixed the price level is fixed 2. Because demand determines the quantities that each firm sells, aggregate demand determines the aggregate quantity of goods and services sold, which equals real GDP Aggregate planned expenditure- planned consumption expenditure + planned investement + planned govt spending + planned exports Planned imports Induced expenditure = Consumption imports (varies with real GDP) Autonomous expenditure = Govt spending + Investment + Exports ( Does not vary with real GDP) Equilibrium expenditure- level of aggregate expenditure that occurs when aggregate planned expenditure equals real GDP...
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This note was uploaded on 04/18/2008 for the course ECONOMIC 020 taught by Professor Parkin during the Spring '08 term at UWO.

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Ch 23 - Wealth Increase shift C up and S Down Marginal...

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