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Unformatted text preview: The two sector model Actual aggregate expenditure is always equal to real GDP. Aggregate planned expenditure equal to real GDP at equilibrium. The open economy Aggregate planned expenditure increases as real GDP increases. However, only consumption expenditure and imports increase with real GDP. Induced expenditure is the sum of the components of aggregate expenditure that vary with real GDP Autonomous expenditure is the sum of the components of aggregate expenditure that are not influenced by real GDP. Aggregate Planned Expenditure and Real GDP The marginal propensity to consume ( mpc ) is the fraction of a change in disposable income spent on consumption. o It is calculated as the change in consumption expenditure, D C , divided by the change in disposable income, D YD , that brought it about. o That is: mpc = C / YD The open economy...
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- Three '11