Chapter 21

Chapter 21 - Chapter 21 AE = C + I +G + (X-Im) o AE: The...

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Chapter 21 - AE = C + I +G + (X-Im) o AE: The planned or desired spending on demonestic output by households, firms, governments and foreigners. o Autonomous Spending: Elemtens of expenditure that do not change with national income Induce: Systematically related to national income o We use a closed economy: So no gov spending or trade o Savings: All disposable income that is not consumed. By definiton, money goes to one or the other. o Comsumption function: Relationship between desired consumption expenditure and the variables that determine it. Consumption expenditure and disposable income. Factors include disposable income, wealth, interest rates, expectations about future. If disposable income goes up, spending should go up as well. Shift along consumption factor. o Average propensity to consume: Desire consumption divided by level of disposbe income Consumption/Y D Marginal propensity: Change in Consumption/Change in disposable income A constant positive slope
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This note was uploaded on 04/28/2011 for the course ECON 209 taught by Professor Mattieuprovencher during the Spring '09 term at McGill.

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Chapter 21 - Chapter 21 AE = C + I +G + (X-Im) o AE: The...

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