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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
 ProfAssorted
 Finance, Economics, Macroeconomics, Expenditure, Keynesian economics, Keynes

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