Macroeconomics - SarahSchumacher ECON2066 1...

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Sarah Schumacher ECON2066 11/26/16 1. Why is there a "two-way" link between consumption and GDP? The two-way link exists because consumption is considered a part of aggregate expenditure and  aggregate expenditure is a part of GDP.  2. How does an increase in disposable income affect the consumption function? An increase in  expected future income? If both disposable income and expected future income rise so does consumption on both  sides of disposable and expected future income.  3. If the consumption function shifts upward, what happens to the saving function? Why? When consumptions shift upward the saving function will shift downward. Typically, when people  have more to spend they don’t save so consumption shifts upward and the saving function shifts  downward.  4. When is actual aggregate expenditure different from planned aggregate expenditure? What  happens to bring the two back to equality?
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